<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
REGISTRATION NO. 333-21193
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
<TABLE>
HOMESIDE LENDING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<S> <C> <C>
FLORIDA 6162 59-2725415
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
7301 BAYMEADOWS WAY
JACKSONVILLE, FL 32256
(904) 281-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT J. JACOBS, EXECUTIVE VICE PRESIDENT AND SECRETARY
HOMESIDE LENDING, INC.
7301 BAYMEADOWS WAY
JACKSONVILLE, FL 32256
(904) 281-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
MARY ELLEN O'MARA AND JONATHAN B. MILLER
HUTCHINS, WHEELER & DITTMAR BROWN & WOOD LLP
A PROFESSIONAL CORPORATION ONE WORLD TRADE CENTER
101 FEDERAL STREET NEW YORK, NEW YORK 10048
BOSTON, MASSACHUSETTS 02110 (212) 839-5300
(617) 951-6600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This Pricing Supplement and the accompanying Prospectus
and Prospectus Supplement shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PRICING SUPPLEMENT DATED MARCH 17, 1997
Pricing Supplement (To Prospectus Dated --, 1997
and Prospectus Supplement Dated --, 1997)
HOMESIDE LENDING, INC. [HOMESIDE LOGO]
$--,000,000
- --% NOTES DUE --
Interest on the --% Notes due -- (the "Notes") is payable semiannually in
arrears on -- and -- of each year, commencing on --, 1997. The Notes will mature
on --, are not redeemable prior to maturity and will not be subject to any
sinking fund. The Notes represent senior unsecured obligations of HomeSide
Lending, Inc. (the "Issuer").
The Notes will be initially represented by one or more global securities
("Global Securities") registered in the name of The Depository Trust Company
(the "Depository") or its nominee. Beneficial interests in the Global Securities
will be shown on, and transfers thereof will be effected through, records
maintained by the Depository or its participants. Except as provided herein,
Notes in definitive form will not be issued. See "Description of
Notes--Book-Entry Notes" in the accompanying Prospectus Supplement. Settlement
for the Notes will be made in immediately available funds. All payments of
principal and interest will be made by the Issuer in immediately available
funds. See "Description of Notes--Same-Day Settlement and Payment" in the
accompanying Prospectus Supplement.
-------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 OF THE ACCOMPANYING PROSPECTUS
SUPPLEMENT FOR CERTAIN CONSIDERATIONS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
-------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PRICING SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS
AND PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) ISSUER(1)(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER NOTE % % %
TOTAL $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from --, 1997.
(2) The Issuer has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Supplemental Plan of Distribution."
(3) Before deducting expenses payable by the Issuer estimated at $--.
-------------------------------------------------------------
The Notes are offered by the several Underwriters, subject to prior sale, when,
as and if issued to and accepted by them and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in book-entry form through the facilities of
the Depository in New York, New York on or about --, 1997.
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
NATIONSBANK CAPITAL MARKETS, INC.
SMITH BARNEY INC.
The date of this Pricing Supplement is --, 1997.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER
UNDERWRITERS' SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"SUPPLEMENTAL PLAN OF DISTRIBUTION."
------------------------
USE OF PROCEEDS
The net proceeds to be received by the Issuer from the sale of the Notes
offered hereby are estimated to be $ . The Issuer intends to use $
of the net proceeds to repay in full revolving credit loans (the "Chase
Revolving Loans") outstanding under a loan agreement, dated as of January 15,
1997, as amended (the "Chase Loan Agreement"), between the Issuer and The Chase
Manhattan Bank ("Chase"). On , 1997, the amount outstanding under the
Chase Loan Agreement was $ . The Issuer intends to use $ of the
net proceeds to repay in full revolving credit loans (the "Merrill Revolving
Loans", and together with the Chase Revolving Loans, the "Revolving Loans")
outstanding under a loan agreement dated as of March 14, 1997 (the "Merrill Loan
Agreement") between the Issuer and an affiliate of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") (the "Merrill Lender"). The Revolving
Loans mature, and will be terminated, on the earlier to occur of (i) April 1,
1997, or (ii) the consummation of the sale of Notes offered hereby. As of
, 1997, the Revolving Loans carry a weighted average interest rate on
amounts borrowed of % per annum. See "Description of Certain
Indebtedness--Other Lending Arrangements" in the accompanying Prospectus. In
addition, approximately $ of the net proceeds will be used to reduce the
amounts outstanding under that certain credit agreement entered into by the
Issuer on January 31, 1997, which amended and restated credit agreement was
originally entered into on May 31, 1997 (as amended and restated, the "Bank
Credit Agreement"). On , 1997, the amount outstanding under the Bank
Credit Agreement was $ . The loans under the Bank Credit Agreement mature
on February 14, 2000 and, as of , 1997, carry a weighted average interest
rate on amounts borrowed of % per annum. See "Description of Certain
Indebtedness--Bank Credit Agreement" in the accompanying Prospectus. The balance
of the net proceeds, if any, will be used for working capital and general
corporate purposes, including the purchase of servicing rights. Amounts repaid
under the Bank Credit Agreement may be reborrowed by the Issuer for corporate
purposes. Chase, the lender under the Chase Loan Agreement, and the
administrative agent and a lender under the Bank Credit Agreement and an
affiliate of Chase Securities Inc. will receive all amounts to be repaid under
the Chase Loan Agreement with the proceeds of this offering, and Chase also will
receive its proportionate share of any repayments under the Bank Credit
Agreement with the proceeds of this offering. The Merrill Lender, the lender
under the Merrill Loan Agreement and an affiliate of Merrill Lynch, will receive
all amounts to be repaid under the Merrill Loan Agreement with the proceeds of
this offering. NationsBank, a lender under the Bank Credit Agreement and an
affiliate of NationsBank Capital Markets, Inc., will receive its proportionate
share of any repayments under the Bank Credit Agreement with the proceeds from
this offering. See "Supplemental Plan of Distribution."
PS-2
<PAGE> 4
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Issuer and its consolidated subsidiaries ("HomeSide") as of November 30,
1996 and as adjusted to give effect to the public offering in January 1997 of
the common stock of HomeSide, Inc. (the "Parent") and the sale of the Notes and
the application of the estimated net proceeds therefrom as described in "Use of
Proceeds." The information in this table should be read in conjunction with the
consolidated financial statement and related notes appearing in the accompanying
Prospectus.
<TABLE>
<CAPTION>
AT PUBLIC OFFERING OFFERING OF
NOVEMBER 30, 1996 OF PARENT STOCK(a) NOTES(b) AS ADJUSTED
----------------- ------------------ ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Short-term debt:
Warehouse credit facility.......... $ 1,074.8 $ -- $ -- $
========= ====== ======== =========
Long-term debt:
Servicing secured credit
facility......................... 936.2 38.2
Notes.............................. -- --
Other.............................. 21.3 -- --
--------- ------ -------- ---------
Total long-term debt.......... 957.5 (38.2)
Stockholder's equity
Common Stock, par value $1.00 per
share, 100 shares authorized,
issued and outstanding........... -- -- --
Additional paid-in capital......... 533.2 38.8 572.0
Retained earnings.................. 24.1 (2.6) -- 21.5
--------- ------ -------- ---------
Total stockholder's equity.... 557.3 36.2 -- 593.5
--------- ------ -------- ---------
Total capitalization.......... $ 1,514.8 $ (0.0) $ $
========= ====== ======== =========
</TABLE>
(a) Gives effect to the capital injection received from the Parent as part of
the Parent's public offering of common stock in January 1997. The Parent
issued 8,462,500 shares at an initial public offering price of $15.00 per
share. Net proceeds to the Parent were $116,673,100. A portion of the
proceeds was used to repay $70,000,000 principal amount of Parent notes at a
premium of $7,875,000. The remaining proceeds were contributed to the Issuer
and are being used to repay amounts outstanding under the Bank Credit
Agreement. In connection with the repayment of Parent notes, the Issuer paid
dividends of $2.6 million to the Parent for accrued interest on the notes
repaid.
(b) Gives effect to the offering of $ of Medium-Term Notes hereunder.
The Notes will bear interest at %, payable semiannually beginning
and will mature on . The proceeds from the
Notes will be used to repay existing indebtedness of the Issuer. See "Use of
Proceeds."
PS-3
<PAGE> 5
DESCRIPTION OF NOTES
The following summaries of certain provisions of the Notes do not purport
to be complete and are qualified in their entirety by reference to the actual
provisions of the Notes. The particular terms of the Notes contained herein
supplements, and, to the extent inconsistent therewith, replaces, the
description of the general terms and provisions of the Medium-Term Notes as set
forth and described in the accompanying Prospectus and Prospectus Supplement, to
which description reference is hereby made.
The -- % Notes due -- (the "Notes") are Fixed Rate Notes (as defined in the
accompanying Prospectus Supplement) and are part of the Medium-Term Notes series
of Debt Securities of the Issuer described in the accompanying Prospectus and
Prospectus Supplement. The Notes will be issued under an Indenture, dated as of
, 1997 (the "Indenture"), between the Issuer and The Bank of New York,
as trustee (the "Trustee"). The following summaries of certain provisions of the
Notes and the Indenture do not purport to be complete and are qualified in their
entirety by reference to the actual provisions of the Notes and the Indenture,
including the definitions therein of certain terms.
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and the Issuer may, from time to time,
without the consent of the holders of the Notes, provide for the issuance of
additional Notes or other Debt Securities under the Indenture in addition to the
Notes offered hereby. The Bank Credit Agreement and an indenture relating to
outstanding debt of the Parent contain certain covenants limiting the Issuer's
ability to incur indebtedness. See "Description of Certain Indebtedness" and
"Description of Debt Securities -- General" in the accompanying Prospectus.
The Notes will be unsecured and unsubordinated obligations of the Issuer
and will rank on a parity with other unsecured and unsubordinated indebtedness
of the Issuer. As of , 1997, the Issuer had an aggregate of
$ of indebtedness outstanding, all of which was secured.
Interest on the Notes will be payable semiannually on and
of each year (each, an "Interest Payment Date"), commencing on
, 1997, to the persons in whose names the Notes are registered at
the close of business on the preceding or , as the
case may be (whether or not a Business Day, as defined below). The Notes will
bear interest at the rate per annum shown on the cover of this Pricing
Supplement from --, 1997, or from the most recent date to which interest has
been paid or duly made available for payment to, but excluding, the applicable
Interest Payment Date or the maturity date, as the case may be. Interest payable
at maturity will be payable to the persons to whom principal shall then be
payable. Interest on the Notes will be computed on the basis of a 360-day year
of twelve 30-day months. If an Interest Payment Date or the maturity date of the
Notes falls on a day that is not a Business Day, the payment will be made on the
next succeeding Business Day as if made on the date such payment was due, and no
interest will accrue on such payment for the period from and after such Interest
Payment Date or the maturity date, as the case may be, to the date of such
payment on the next succeeding Business Day. "Business Day" means any day, other
than a Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions are authorized or required by law, regulation or executive
order to close in The City of New York. The Notes will mature on --, may not be
redeemed prior to maturity and will not be subject to any sinking fund. See
"Description of Notes" in the accompanying Prospectus Supplement.
The Notes will be issued in book-entry form through the facilities of the
Depository in New York. New York in minimum denominations of $1,000 and integral
multiples thereof. See "Description of Notes -- Book-Entry Notes" in the
accompanying Prospectus Supplement.
PS-4
<PAGE> 6
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in a distribution agreement,
dated , 1997 (the "Distribution Agreement"), as supplemented by a
terms agreement, dated , 1997 (the "Terms Agreement"), relating to the
Issuer's Medium-Term Notes (including the Notes), the Issuer has agreed to sell
to each of the Underwriters named below (the "Underwriters"), and each of the
Underwriters has severally agreed to purchase, the respective principal amount
of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Chase Securities Inc. .............................................. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
NationsBank Capital Markets, Inc. ..................................
Smith Barney Inc. ..................................................
----------
Total.................................................. $ ,000,000
</TABLE>
In the Distribution Agreement and the Terms Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the Notes offered hereby if any are purchased.
The Underwriters have advised the Issuer that they propose to offer the
Notes directly to the public at the public offering price set forth on the cover
page of this Pricing Supplement, and to certain dealers at such price less a
concession not in excess of % of the principal amount per Note. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount per Note to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Notes are a new issue of securities with no established trading market.
The Issuer has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue any
market making at any time without notice. [The Notes will not be listed on any
stock exchange or through the National Association of Securities Dealers
Automated Quotation System,] and there can be no assurance that there will be a
secondary market for the Notes or that there will be liquidity in such market if
one develops.
The Underwriters and/or certain of their affiliates have engaged and may in
the future engage in various investment banking and/or commercial banking
transactions with the Issuer and certain of its affiliates in the ordinary
course of business. See "Plan of Distribution" in the accompanying Prospectus.
Chase, an affiliate of Chase Securities Inc., an Underwriter of the Notes, and
the Merrill Lender, an affiliate of Merrill Lynch an Underwriter of the Notes,
are lenders under the Chase Loan Agreement and the Merrill Loan Agreement,
respectively, each of which is to be repaid in full with the proceeds from the
sale of the Notes offered hereby. In addition, Chase is the administrative agent
and a lender, and NationsBank, an affiliate of NationsBank Capital Markets,
Inc., an Underwriter of the Notes, is a lender, in each case under the Bank
Credit Agreement which is to be repaid in part with such proceeds. Aggregate
repayments to Chase, the Merrill Lender and NationsBank would comprise more than
10% of the net proceeds from the offering of the Notes. Accordingly, this
offering of the Notes is being made in accordance with the provisions of Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Chase Securities Inc., Merrill Lynch and NationsBank Capital
Markets, Inc. are each participating in this offering on the same terms as the
other Underwriters and will not receive any benefit in connection with this
offering other than customary managing, underwriting and selling fees.
The Issuer has agreed to indemnify the several Underwriters against, or to
provide contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution" in the
accompanying Prospectus and Prospectus Supplement.
The Underwriters are permitted to engage in certain transactions that
stabilize the price of the Notes. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Notes. If the
Underwriters create a short position in the Notes in connection with the
offering, i.e., if they sell
PS-5
<PAGE> 7
Notes in an aggregate principal amount exceeding that set forth on the cover
page of this Pricing Supplement, the Underwriters may reduce that short position
by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Issuer nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Issuer nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
PS-6
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MARCH 17, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
$1,000,000,000
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------------
HomeSide Lending, Inc. (the "Issuer") may offer on a continuing basis up to
$1,000,000,000 aggregate initial offering price of its Medium-Term Notes Due
Nine Months or More From Date of Issue (the "Notes"). Such aggregate initial
offering price is subject to reduction as a result of the sale by the Issuer of
other Debt Securities described in the accompanying Prospectus. Each Note will
mature on any day nine months or more from the date of issue, as specified in
the applicable pricing supplement hereto (each, a "Pricing Supplement"), and may
be subject to redemption at the option of the Issuer or repayment at the option
of the holder thereof, in each case, in whole or in part, prior to its Stated
Maturity Date, if specified in the applicable Pricing Supplement. The Notes will
be issued in minimum denominations of $1,000 and integral multiples thereof,
unless otherwise specified in the applicable Pricing Supplement. All Notes will
be unsecured general obligations of the Issuer and will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Issuer from time to time
outstanding. As of December 31, 1996, the amount of outstanding indebtedness of
the Issuer senior to the Notes was $2,069.0 million.
The Issuer may issue Notes that bear interest at fixed rates ("Fixed Rate
Notes") or at floating rates ("Floating Rate Notes"). The applicable Pricing
Supplement will specify whether a Floating Rate Note is a Regular Floating Rate
Note, a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note and
whether the rate of interest thereon is determined by reference to one or more
of the CD Rate, the CMT Rate, the Commercial Paper Rate, the Eleventh District
Cost of Funds Rate, the Federal Funds Rate, LIBOR, the Prime Rate or the
Treasury Rate (each, an "Interest Rate Basis"), or any other interest rate basis
or formula, as adjusted by any Spread and/or Spread Multiplier. Interest on each
Floating Rate Note will accrue from its date of issue and, unless otherwise
specified in the applicable Pricing Supplement, will be payable monthly,
quarterly, semiannually or annually in arrears, as specified in the applicable
Pricing Supplement, and on the Maturity Date. Unless otherwise specified in the
applicable Pricing Supplement, the rate of interest on each Floating Rate Note
will be reset daily, weekly, monthly, quarterly, semiannually or annually, as
specified in the applicable Pricing Supplement. Interest on each Fixed Rate Note
will accrue from its date of issue and, unless otherwise specified in the
applicable Pricing Supplement, will be payable semiannually in arrears on
and of each year and on the Maturity Date. The Issuer may also issue Discount
Notes, Indexed Notes and Amortizing Notes.
The interest rate, or formula for the determination of the interest rate, if
any, applicable to each Note and the other variable terms thereof will be
established by the Issuer on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formulas and
other terms of Notes are subject to change by the Issuer, but no such change
will affect any Note previously issued or as to which an offer to purchase has
been accepted by the Issuer.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (or such other depositary
identified in the applicable Pricing Supplement) (the "Depository") and
registered in the name of the Depository or the Depository's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depository (with respect to its
participants) and the Depository's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
SEE "RISK FACTORS" COMMENCING ON PAGE S-11 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) ISSUER(1)(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.......... 100% [.125% - .750%] [99.875% - 99.250%]
- ---------------------------------------------------------------------------------------------------------
Total............. $1,000,000,000 $ -$ $ -$
=========================================================================================================
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Chase Securities Inc., NationsBank Capital Markets, Inc. and Smith Barney
Inc. (the "Agents"), individually or in a syndicate, may purchase Notes, as
principal, from the Issuer for resale to investors and other purchasers at
varying prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent or, if so specified in the applicable
Pricing Supplement, for resale at a fixed offering price. Unless otherwise
specified in the applicable Pricing Supplement, any Note sold to an Agent as
principal will be purchased by such Agent at a price equal to 100% of the
principal amount thereof less a percentage of the principal amount equal to
the commission applicable to an agency sale (as described below) of a Note
of identical maturity. If agreed to by the Issuer and an Agent, such Agent
may utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Issuer will pay a
commission to an Agent, ranging from [.125% to .750%] of the principal
amount of a Note, depending upon its stated maturity, sold through an Agent.
Commissions with respect to Notes with stated maturities in excess of 30
years that are sold through such Agent will be negotiated between the Issuer
and such Agent at the time of such sale. See "Plan of Distribution."
(2) The Issuer has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Issuer estimated at $ .
------------------------
The Notes are being offered on a continuing basis by the Issuer to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange. There is no
assurance that the Notes offered hereby will be sold or, if sold, that there
will be a secondary market for the Notes or liquidity in the secondary market if
one develops. The Issuer reserves the right to cancel or modify the offer made
hereby without notice. The Issuer or an Agent, if it solicits the offer on an
agency basis, may reject any offer to purchase Notes in whole or in part. See
"Plan of Distribution."
------------------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
NATIONSBANK CAPITAL MARKETS, INC.
SMITH BARNEY INC.
The date of this Prospectus Supplement is , 1997.
<PAGE> 9
Unless otherwise referred to herein or in the accompanying Prospectus, or
the context otherwise requires, references to "HomeSide" shall mean HomeSide
Lending, Inc. (the "Issuer"), a Florida corporation, and its consolidated
subsidiaries. The Issuer was formerly known as BancBoston Mortgage Corporation
("BBMC"). The Issuer is an indirect wholly-owned subsidiary of HomeSide, Inc.
(the "Parent"), a Delaware corporation. The Parent was formed in December 1995,
but had no operations prior to its acquisition of BBMC on March 15, 1996
(hereafter the "HLI Acquisition"), which was accounted for as a purchase
transaction. BBMC prior to its acquisition is hereinafter sometimes referred to
as "HLI". The Parent acquired Barnett Mortgage Company ("BMC"), now known as
HomeSide Holdings, Inc. ("HHI"), on May 31, 1996 (the "HHI Acquisition"), which
was accounted for as a purchase transaction. HHI is a wholly-owned subsidiary of
the Parent, and the Issuer is a wholly-owned subsidiary of HHI. All of the
assets and liabilities of HHI, except for certain portions of HHI's GNMA
servicing rights, have been transferred to the Issuer. BBMC and BMC operated on
a fiscal year end of December 31. The Parent, HHI and the Issuer have adopted a
February 28 fiscal year end and all references herein to 1997 refer to the
fiscal year ending February 28, 1997.
All combined or pro forma financial information for HomeSide as of November
30, 1996 or for the period March 16, 1996 to November 30, 1996 has been prepared
using HomeSide information as of November 30, 1996 or for the period beginning
March 16, 1996 and HHI information (excluding the net income related to the
assets retained by HHI) beginning April 1, 1996 to May 30, 1996. All information
for HomeSide presented as of or for the period ended March 31, 1996 has been
prepared by combining information for BBMC for the period ended March 15, 1996
with information for HomeSide for the period March 16, 1996 to March 31, 1996.
HomeSide's executive offices are located at 7301 Baymeadows Way, Jacksonville,
Florida 32256, telephone number (904) 281-3000.
S-2
<PAGE> 10
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, risk factors and financial
statements, including the related notes, appearing elsewhere in this Prospectus
Supplement or the Prospectus.
HOMESIDE
HomeSide is one of the largest full-service residential mortgage banking
companies in the United States. Formed through the acquisition of the mortgage
banking operations of The First National Bank of Boston ("Bank of Boston" or
"BKB") and Barnett Banks, Inc. ("Barnett"). HomeSide's strategy emphasizes
variable cost mortgage origination and low cost servicing. On a combined basis
HomeSide's origination volume and servicing portfolio would have been $14.7
billion and $73.9 billion, respectively, for and as of the year ended December
31, 1995, ranking HomeSide as the 5th largest originator and 7th largest
servicer in the United States for 1995 based on data published by National
Mortgage News. For and as of the nine months ended November 30, 1996, HomeSide's
loan originations and acquisitions were $18.9 billion and its servicing
portfolio was $87.7 billion.
HomeSide's business strategy is to increase the volume of its loan
originations and the size of its servicing portfolio while continuing to improve
operating efficiencies. In originating mortgages, HomeSide focuses on variable
cost channels of production, including correspondent, broker, consumer direct,
affinity, and co-issue sources. HomeSide also pursues strategic relationships
such as its existing 5-year agreements to acquire and service residential
mortgage loans from BKB and Barnett production sources, which, for the period
May 31, 1996 through November 30, 1996, represented 19.5% of HomeSide's loan
production. Management believes that these variable cost channels of production
deliver consistent origination opportunities for HomeSide without the fixed cost
investment associated with traditional retail mortgage branch networks. HomeSide
believes that its ongoing investment in technology will further enhance and
expand existing processing capabilities and improve its efficiency. Based on
independent surveys of direct cost per loan and loans serviced per employee,
management believes that HomeSide has been one of the industry's most efficient
mortgage servicers.
HomeSide plans to build its core operations through (i) improved economies
of scale in servicing costs; (ii) increased productivity using proprietary
technology; and (iii) expanded and diversified variable cost origination
channels. In addition, HomeSide intends to pursue additional loan portfolio
acquisitions and strategic origination relationships similar to the existing BKB
and Barnett arrangements.
Ownership. The Issuer is an indirect wholly-owned subsidiary of the
Parent. Thomas H. Lee Equity Fund III, L.P. (the "Fund") and certain affiliates
of Thomas H. Lee Company (collectively, "THL"), Madison Dearborn Capital
Partners, L.P. ("MDP"), Bank of Boston and Siesta Holdings, Inc., an affiliate
of Barnett ("Siesta") own in the aggregate approximately 79% of the outstanding
common stock, par value $0.01 per share, of the Parent (the "Common Stock").
THL, MDP, Bank of Boston and Siesta are collectively referred to herein as the
"Principal Shareholders." See "Security Ownership of Certain Beneficial Owners
and Management" in the accompanying Prospectus.
GENERAL INDENTURE PROVISIONS APPLICABLE TO THE NOTES
- The Indenture does not limit the aggregate principal amount of Debt
Securities that the Issuer may issue or provide holders any protection
should there be a highly leveraged transaction involving the Issuer.
- The Indenture allows the Issuer to merge or consolidate with another
company, or sell all or substantially all of its assets to another
company. If these events occur, the other company will be required to
assume the Issuer's responsibilities on the Notes, and the Issuer will
be released from all liabilities and obligations.
S-3
<PAGE> 11
- The Indenture provides that holders of a majority in principal amount of
the Notes may vote to change the Issuer's obligations or the holders'
rights concerning the Notes. But to change the payment of principal or
interest, every holder of a Note affected thereby must consent.
- The Issuer may discharge the Indenture at any time by depositing
sufficient funds with the trustee under the Indenture to pay the
obligations when due. All amounts due to the holders on the Notes would
be paid by the Trustee from the deposited funds.
- If any of the following Events of Default occurs under the Notes, the
Indenture provides the following remedies:
Events of Default
- Principal not paid when due
- Sinking fund payment not made when due
- Failure to pay interest for 30 days
- Covenants not performed for 60 days
- Acceleration of at least $25,000,000 in principal amount of other debt
not rescinded in 10 days after notice
- Failure by the Issuer or any subsidiary to pay within 60 days any
uninsured judgment or court order for the payment of money in excess
of $25,000,000
- Certain events in bankruptcy, insolvency or reorganization of the
Issuer or any subsidiary
- Any other event of default in the Indenture
Remedies
The trustee under the Indenture or holders of 25% of the principal amount
of Notes outstanding may declare principal immediately payable, subject to
rescission by a majority in principal amount of the holders, except that
upon the occurrence of certain events in bankruptcy, insolvency or
reorganization as described above, principal shall become immediately due
and payable without any act by the trustee or any holder.
The specific terms of each Note will be set forth in the applicable
Pricing Supplement hereto. To understand all of the terms of the Notes, the
holders and prospective investors should read the complete Prospectus,
Prospectus Supplement and the relevant Pricing Supplement, along with the
Indenture and forms of Notes filed as exhibits to the Registration Statement
of which this Prospectus Supplement forms a part. Copies of the Indenture
and the forms of Notes are available for inspection at the corporate trust
office of the trustee or upon request from the Issuer. See also "Additional
Information" in the accompanying Prospectus.
RISK FACTORS
See "Risk Factors" starting on page S-11 for a discussion of certain
factors which should be considered by prospective investors in evaluating an
investment in the securities offered hereby.
S-4
<PAGE> 12
HOMESIDE
SUMMARY UNAUDITED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary unaudited historical consolidated
financial and operating information for the Issuer and its subsidiaries for the
period ended May 31, 1996, for each of the three months ended August 31, 1996
and November 30, 1996 and for the period March 16, 1996 to November 30, 1996. As
a result of the acquisition of HHI by the Parent on May 31, 1996, certain assets
and liabilities were transferred to the Issuer and consequently are included in
results for HomeSide as of and for the period commencing May 31, 1996. Such
information should be read in conjunction with, and is qualified in its entirety
by reference to, HomeSide's consolidated financial statements, pro forma
financial information and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE PERIOD
FOR THE PERIOD MONTHS ENDED MONTHS ENDED MARCH 16, 1996
MARCH 16, 1996 AUGUST 31, NOVEMBER 30, TO NOVEMBER 30,
TO MAY 31, 1996 1996 1996 1996
--------------- -------------- ---------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Mortgage servicing fees.......... $ 41,485 $ 82,179 $ 90,492 $ 214,156
Amortization of mortgage
servicing rights............... (16,442) (39,753) (48,120) (104,315)
----------- ----------- ----------- -----------
Net servicing revenue.......... 25,043 42,426 42,372 109,841
Interest income.................. 12,719 22,270 25,241 60,230
Interest expense................. (12,592) (17,684) (16,140) (46,416)
----------- ----------- ----------- -----------
Net interest revenue........... 127 4,586 9,101 13,814
Net mortgage origination
revenue........................ 10,810 16,273 16,521 43,604
Other income..................... 107 355 79 541
----------- ----------- ----------- -----------
Total revenues......... 36,087 63,640 68,073 167,800
Expenses:
Salaries and employee benefits... 11,480 21,177 20,650 53,307
Occupancy and equipment.......... 1,846 3,084 3,337 8,267
Servicing losses on
investor-owned loans........... 3,938 4,058 4,957 12,953
Other expenses................... 5,345 12,196 11,391 28,932
----------- ----------- ----------- -----------
Total expenses......... 22,609 40,515 40,335 103,459
Income before income taxes....... 13,478 23,125 27,738 64,341
Income tax expense............... 5,526 9,481 11,373 26,380
----------- ----------- ----------- -----------
Net income(e).................... $ 7,952 $ 13,644 $ 16,365 $ 37,961
=========== =========== =========== ===========
SELECTED OPERATING DATA:
Volume of loans originated and
acquired....................... $ 3,780,236 $ 9,565,199(b) $ 5,540,875 $18,886,310(b)
Loan servicing portfolio
(at period end)................ 77,351,849 84,818,725(b) 87,712,746 87,712,746
Loan servicing portfolio
(average during the period).... 43,670,497(a) 81,223,664 86,535,928 69,643,494(c)
Weighted average interest rate
for the servicing portfolio (at
period end).................... 7.86% 7.92% 7.91% 7.91%
Weighted average servicing fee
for the servicing portfolio (at
period end).................... 0.367% 0.363% 0.359% 0.359%
EBITDA(d)........................ $ 43,743 $ 83,720 $ 93,868 $ 221,331
Ratio of EBITDA to total interest
expense........................ 3.47x 4.73x 5.82x 4.77x
</TABLE>
(footnotes on following page)
S-5
<PAGE> 13
<TABLE>
<CAPTION>
AT AT AT
MAY 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996
------------ --------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Mortgage loans held for sale...................... $ 974,484 $ 1,290,841 $ 1,101,229
Mortgage servicing rights......................... 1,216,106 1,409,226 1,321,639
Total assets...................................... 2,640,669 2,909,346 2,833,601
Warehouse credit facility......................... 954,994 1,245,591 1,074,583
Long-term debt(e)................................. 968,059 864,067 957,508
Total liabilities................................. 2,101,703 2,356,705 2,276,265
Total stockholder's equity........................ 538,966 552,641 557,336
</TABLE>
- ---------------
(a) Period information is for the period March 1, 1996 through May 31, 1996.
(b) Includes bulk purchases of $4.1 billion.
(c) Period information is for the period March 1, 1996 through November 30,
1996.
(d) EBITDA represents earnings before total other interest expense, taxes,
depreciation and amortization, including amortization of mortgage servicing
rights. Total other interest expense excludes interest expense to fund
mortgage loans held for sale of $11.2 million, $18.0 million, $18.5 million,
and $47.7 million for the period March 16, 1996 to May 31, 1996, the three
months ended August 31, 1996 and November 30, 1996, and the period March 16,
1996 to November 30, 1996, respectively. Depreciation and amortization,
excluding amortization of mortgage servicing rights, was $1.2 million, $3.2
million, $1.9 million and $6.3 million, respectively, for these periods. In
addition to EBITDA, other major elements of cash flows from investing and
financing activities are important in determining available cash flow. Cash
flows used in operating activities totaled $127.0 million, $210.5 million
and $169.0 million for the period March 16, 1996 to May 31, 1996, the three
months ended August 31, 1996 and the period March 16, 1996 to November 30,
1996, respectively, and cash flows provided by operating activities totaled
$168.6 million for the three months ended November 30, 1996. EBITDA includes
substantially all expenditures for operating expenses.
Cash flows used in investing activities were $363.2 million, $205.8 million,
$106.8 million and $675.7 million for the period March 16, 1996 to May 31,
1996, the three months ended August 31, 1996 and November 30, 1996 and the
period March 16, 1996 to November 30, 1996, respectively. Significant
adjustments to EBITDA from investing activities include the value of
originated mortgage servicing rights (OMSR), cash purchases and proceeds
from risk management contracts, the purchase of mortgage servicing rights.
Revenue from OMSR represents a future cash flow stream and therefore should
be excluded from the determination of the current period's cash flow. OMSR
totaled $3.4 million, $3.8 million, $2.0 million, and $9.2 million for the
period ended March 16, 1996 to May 31, 1996, the three months ended August
31, 1996 and November 30, 1996 and the period March 16, 1996 to November 30,
1996, respectively. During the period March 16, 1996 to November 30, 1996,
cumulative gains and losses on risk management contracts resulted in $60.2
million net gain which reduced the cost basis of mortgage servicing rights
at November 30, 1996 and $88.4 million in cash expenditures was excluded
from net income for the period ended November 30, 1996. The Issuer also
purchases mortgage servicing rights which totaled $77.6 million, $162.8
million, $94.6 million, and $335.0 million for the period March 16, 1996 to
May 31, 1996, the three months ended August 31, 1996 and November 30, 1996,
and the period March 16, 1996 to November 30, 1996, respectively. A portion
of the available financing under the Bank Credit Agreement is based upon the
market value of mortgage servicing rights. Both OMSR and purchases of
mortgage servicing rights increase the available cash flow under the Bank
Credit Agreement.
The Bank Credit Agreement, as hereinafter defined, represents the major
source of financing for cash flows. Cash flow provided by financing
activities totaled $748.6 million, $185.9 million and $845.9 million for the
period March 16, 1996 to May 31, 1996, the three months ended August 31,
1996 and the period March 16, 1996 to November 30, 1996, respectively. Cash
flow used in financing activities was $88.6 million for the three months
ended November 30, 1996. Unused line of credit (i.e., the difference between
the total amount outstanding under the Bank Credit Agreement and the total
amount available thereunder) totaled approximately $489.2 million at
November 30, 1996.
Management believes that the presentation of EBITDA facilitates the reader's
evaluation of the Issuer's debt service capacity, and that EBITDA is a
generally recognized statistic for performing such evaluations. EBITDA
should not be considered as an alternative to net income as an indicator of
the Issuer's operating performance or to cash flow as a measure of
liquidity, but rather to provide additional information related to the
Issuer's ability to service debt.
(e) On May 14, 1996 the Parent issued $200 million of 11.25% Notes due 2003. All
of the outstanding common stock of HomeSide and HHI is pledged as security
on the notes. The only significant asset of the Parent is its investment in
HomeSide and HHI common stock. The Parent is dependent on cash payments from
HomeSide to service its debt obligations. The notes, and related interest
expense, are not reflected in the financial statements of HomeSide.
S-6
<PAGE> 14
HOMESIDE
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The summary unaudited pro forma consolidated financial information for
HomeSide set forth below has been derived from financial information included in
the accompanying Prospectus and all such information is presented on a pro forma
basis, giving effect to the HHI Acquisition and the HLI Acquisition by the
Parent. In addition, the unaudited pro forma consolidated financial information
gives effect to the issuance of Common Stock by the Parent to the public as if
such transaction occurred on March 16, 1996, for income statement data as if
each such transaction had occurred on March 15, 1996. The unaudited pro forma
consolidated financial information does not purport to represent what HomeSide's
results of operations would have been if the HLI Acquisition and the HHI
Acquisition had actually been completed as of the dates indicated and is not
intended to project HomeSide's financial position or results of operations for
any future period. The following summary information should be read in
conjunction with, and is qualified in its entirety by reference to, the
historical financial statements of BBMC and HHI and the unaudited pro forma
consolidated financial information for HomeSide and the related notes thereto
included in the accompanying Prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD THREE FOR THE PERIOD
FOR THE YEAR MARCH 16, MONTHS THREE MARCH 16,
ENDED 1996 ENDED MONTHS ENDED 1996 TO
DECEMBER 31, TO MAY 31, AUGUST 31, NOVEMBER 30, NOVEMBER 30,
1995 1996 1996 1996 1996
------------ ---------- ---------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Mortgage servicing fees........................ $ 296.4 $ 61.3 $ 82.1 $ 90.5 $ 233.9
Gain on risk management contracts(a)........... 108.7 -- -- -- --
Amortization of mortgage servicing rights...... (170.0) (25.7) (39.8) (48.1) (113.6)
-------- -------- -------- -------- --------
Net servicing revenue........................ 235.1 35.6 42.3 42.4 120.3
Interest income................................ 66.9 19.3 22.3 25.2 66.8
Interest expense............................... (49.0) (14.7) (17.1) (15.5) (47.3)
-------- -------- -------- -------- --------
Net interest revenue......................... 17.9 4.6 5.2 9.7 19.5
Net mortgage origination revenue............... 0.7 11.8 16.3 16.5 44.6
Other income................................... 0.7 0.1 0.4 0.1 0.6
-------- -------- -------- -------- --------
Total revenues........................ 254.4 52.1 64.2 68.7 185.0
Total expenses........................ 142.7 35.3 40.6 40.3 116.2
-------- -------- -------- -------- --------
Income before income taxes..................... 111.7 16.8 23.6 28.4 68.8
Income tax expense............................. 45.7 6.9 9.7 11.7 28.3
-------- -------- -------- -------- --------
Net income(e).................................. $ 66.0 $ 9.9 $ 13.9 $ 16.7 $ 40.5
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
Volume of loans originated and acquired........ $ 14,652 $ 4,762 $ 9,565(c) $ 5,541 $ 19,868(c)
Loan servicing portfolio (at period end)....... 73,886 77,352 84,819(c) 87,713 87,713
Loan servicing portfolio (average during the
period)...................................... 68,873 76,708(b) 81,224 86,536 69,643(d)
Weighted average interest rate for the
servicing portfolio (at period end).......... 8.01% 7.86% 7.92% 7.91% 7.91%
Weighted average servicing fee for the
servicing portfolio (at period end).......... 0.351% 0.355% 0.363% 0.359% 0.359%
</TABLE>
(footnotes on following page)
S-7
<PAGE> 15
<TABLE>
<CAPTION>
AT
NOVEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(f)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets........................................... $2,833,601 $2,833,601
Warehouse credit facility.............................. 1,074,583 1,074,583
Long-term debt(e)...................................... 957,508 918,710
Total liabilities...................................... 2,276,265 2,237,467
Total stockholder's equity............................. 557,336 593,534
- ---------------
(a) The non-cash portion of gain on risk management contracts was $86.5 million
pro forma HomeSide for the HLI Acquisition and HHI Acquisition for the year
ended December 31, 1995. See Note 3 of HomeSide's November 30, 1996
financial statements on F-5 in the accompanying Prospectus for a description
of HomeSide's hedge accounting policy.
(b) Period information is for the period March 1, 1996 through May 31, 1996.
(c) Includes bulk purchases of $4.1 billion.
(d) Period information is for the period March 1, 1996 through November 30,
1996.
(e) On May 14, 1996, the Parent issued $200 million of 11.25% Notes due 2003.
All of the outstanding common stock of HomeSide and HHI is pledged as
security on the notes. The only significant asset of the Parent is its
investment in HomeSide common stock. The Parent is dependent on cash
payments from HomeSide to service its debt obligations. The notes, and
related interest expense, are not reflected in the financial statements of
HomeSide.
(f) Adjusted to give effect to the sale of Common Stock by the Parent and the
application of a portion of the net proceeds contributed to HomeSide as if
such transaction had occurred on November 30, 1996. See "Index to Financial
Statements--Unaudited Pro Forma Consolidated Financial Information" in the
accompanying Prospectus.
</TABLE>
S-8
<PAGE> 16
HLI
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary historical consolidated financial
and operating information for HLI (formerly BancBoston Mortgage Corporation) for
the periods prior to its acquisition by the Parent. Such information should be
read in conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements, pro forma financial information and related
notes included in the accompanying Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE JANUARY 1,
YEARS ENDED DECEMBER 31, MONTHS ENDED 1996 TO MARCH
------------------------------------------------------------------- MARCH 31, 15,
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Mortgage servicing fees.... $ 92,362 $ 105,890 $ 111,822 $ 140,491 $ 173,038 $ 43,657 $ 38,977
Gain (loss) on risk
management contracts..... -- -- 6,688 (6,702) 108,702 3,612 (128,795)
Amortization of mortgage
servicing rights......... (37,213) (73,908) (112,492) (66,801) (108,013) (23,103) (7,245)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net servicing revenue.... 55,149 31,982 6,018 66,988 173,727 24,166 (97,063)
Interest income............ 41,252 46,865 50,156 31,585 24,324 4,122 8,423
Interest expense........... (27,686) (38,855) (44,199) (33,952) (27,128) (6,079) (10,089)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest revenue..... 13,566 8,010 5,957 (2,367) (2,804) (1,957) (1,666)
Net mortgage origination
revenue (expense)........ 6,508 1,123 6,173 4,983 3,417 (1,083) 7,638
Gain on sales of servicing
rights................... 12,034 14,769 651 10,862 10,230 4,285 --
Other income............... 52 17 50 147 511 13 253
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues..... 87,309 55,901 18,849 80,613 185,081 25,424 (90,838)
Expenses:
Salaries and employee
benefits............... 27,328 30,053 33,096 40,370 45,381 11,696 10,287
Occupancy and equipment.. 7,809 7,788 7,966 9,012 10,009 2,358 2,041
Servicing losses on
investor-owned loans... 2,880 8,138 2,770 7,177 9,981 733 5,560
Real estate acquired..... 1,195 1,124 1,600 253 1,054 218 291
Other expenses........... 17,552 20,461 22,058 19,326 21,896 4,713 7,377
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses..... 56,764 67,564 67,490 76,138 88,321 19,718 25,556
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes and cumulative
effects of changes in
accounting principles.... $ 30,545 $ (11,663) $ (48,641) $ 4,475 $ 96,760 $ 5,706 $ (116,394)
=========== =========== =========== =========== =========== =========== ===========
Net income (loss).......... $ 18,377 $ (7,834) $ (85,185) $ 5,405 $ 58,826 $ 3,429 $ (73,861)
=========== =========== =========== =========== =========== =========== ===========
SELECTED OPERATING DATA:
Volume of loans originated
and acquired............. $ 5,196,996 $ 9,705,875 $13,682,761 $14,473,000 $ 9,567,521 $ 1,181,642 $ 4,187,603(a)
Loan servicing portfolio
(at period end).......... 20,600,569 23,705,642 27,999,100 37,971,200 41,555,354 37,800,120 44,158,163(a)
Loan servicing portfolio
(average)................ 19,663,100 22,153,100 25,852,400 33,178,600 39,283,700 38,099,730 43,158,072(a)
Weighted average interest
rate (at period end)..... 9.65% 9.05% 8.07% 7.91% 7.97% 7.90% 7.92%(a)
Weighted average servicing
fee (average for
period).................. 0.400% 0.390% 0.372% 0.389% 0.383% 0.384% 0.380%(a)
SELECTED BALANCE SHEET
DATA (AT PERIOD END):
Mortgage loans held for
sale..................... $ 507,776 $ 495,455 $ 607,506 $ 271,215 $ 388,436 $ 70,978 $ 641,465
Mortgage servicing
rights................... 296,393 337,307 281,727 431,148 551,338 414,974 542,862
Total assets............... 1,034,269 1,073,686 1,193,583 1,006,887 1,254,303 858,001 1,512,902
Note payable to parent..... 748,827 799,992 1,019,011 779,021 966,000 648,499 1,256,000
Total liabilities.......... 818,890 866,141 1,071,223 879,122 1,067,712 726,807 1,400,172
Total stockholder's
equity................... 215,379 207,545 122,360 127,765 186,591 131,194 112,730
</TABLE>
- ---------------
(a) Period information is for the period January 1, 1996 to March 31, 1996 and
period end information is at March 31, 1996.
S-9
<PAGE> 17
HHI
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary historical consolidated financial
and operating information for HHI (formerly Barnett Mortgage Company) for the
periods prior to its acquisition by the Parent. Such information should be read
in conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements, pro forma financial information and related
notes included in the accompanying Prospectus.
<TABLE>
<CAPTION>
FOR THE
THREE FOR THE
YEARS ENDED DECEMBER 31, MONTHS ENDED PERIOD APRIL
------------------------------------------------------- JUNE 30, 1, 1996 TO
1991 1992 1993 1994(A) 1995(B) 1995 MAY 30, 1996
------- -------- -------- -------- -------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Mortgage origination revenue:
Mortgage origination fees..... $ -- $ -- $ 358 $ 3,276 $ 17,104 $ 3,469 $ 1,646
Gain (loss) on sales of loans,
net......................... 3,184 8,187 5,688 692 (13,920) 995 (3,383)
------- ------- ------- -------- -------- -------- -------
Total mortgage
origination revenue.... 3,184 8,187 6,046 3,968 3,184 4,464 (1,737)
Interest income (expense):
Interest income............... 765 657 855 3,460 27,264 4,420 5,638
Interest expense,
substantially all to
affiliates.................. (568) (531) (1,415) (4,911) (20,427) (6,766) (3,480)
------- ------- ------- -------- -------- -------- -------
Net interest income
(expense).............. 197 126 (560) (1,451) 6,837 (2,346) 2,158
Mortgage servicing revenue:
Mortgage servicing income..... 10,143 13,427 20,560 27,130 83,502 22,439 15,709
Mortgage servicing income from
affiliates.................. 6,986 16,143 18,326 20,017 25,057 6,407 5,464
Amortization of capitalized
mortgage servicing rights... (2,453) (6,013) (11,547) (17,783) (48,282) (12,124) (8,456)
Gain on sales of servicing.... -- -- -- -- 9,096 -- --
------- ------- ------- -------- -------- -------- -------
Net mortgage servicing
revenue................ 14,676 23,557 27,339 29,364 69,373 16,722 12,717
Other income................... 2,860 7,750 6,296 4,492 2,592 6,203 1,678
------- ------- ------- -------- -------- -------- -------
Total revenues........... 20,917 39,620 39,121 36,373 81,986 25,043 14,816
Expenses:
Salaries and benefits......... 7,778 13,698 13,914 17,474 53,070 14,301 10,402
General and administrative.... 10,349 11,401 12,432 14,924 41,849 12,119 6,816
Affiliate profit sharing...... 1,699 12,471 10,774 3,534 6,242 -- --
Occupancy and equipment....... 1,091 1,167 1,810 2,702 5,960 2,424 1,569
Amortization of goodwill...... -- -- -- 259 4,840 1,673 928
------- ------- ------- -------- -------- -------- -------
Total expenses........... 20,917 38,737 38,930 38,893 111,961 30,517 19,715
------- ------- ------- -------- -------- -------- -------
Income (loss) before income
taxes......................... $ 0 $ 883 $ 191 $ (2,520) $(29,975) $ (5,474) $ (4,899)
======= ======= ======= ======== ======== ======== =======
Net income (loss).............. $ (34) $ 17 $ 104 $ (2,058) $(20,386) $ (3,356) $ (3,985)
======= ======= ======= ======== ======== ======== =======
SELECTED OPERATING DATA
(DOLLARS IN MILLIONS):
Volume of loans originated and
acquired...................... $ 1,945 $ 3,507 $ 3,360 $ 3,410 $ 5,767 $ 1,330 $ 982
Loan servicing portfolio (at
period end)................... 10,034 11,524 13,085 18,411 33,411 33,070 (d)
Loan servicing portfolio
(average)..................... 9,639 10,779 12,305 15,748 30,669 32,839 33,057
Weighted average interest rate
(at period end)(c)............ -- -- 7.34% 7.44% 8.05% 7.98% (d)
Weighted average servicing fee
(average for period)(c)....... -- -- 0.259% 0.261% 0.299% 0.301% 0.346%
SELECTED BALANCE SHEET DATA (AT
PERIOD END):
Mortgage loans held for sale... $ -- $ -- $ -- $183,914 $465,880 $331,184 (e)
Mortgage servicing rights...... 12,959 25,458 48,941 92,461 250,788 259,796 (e)
Total assets................... 42,082 61,166 96,186 359,472 994,630 857,046 (e)
Notes payable.................. 16,107 20,325 63,329 248,214 653,056 503,000 (e)
Total liabilities.............. 22,676 38,541 69,930 274,570 762,802 612,311 (e)
Total stockholder's equity..... 19,406 22,625 26,257 84,902 231,828 244,735 (e)
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE PERIOD
JUNE 30, JANUARY 1, 1996
1995 TO MAY 30, 1996
------------ ---------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Mortgage origination revenue:
Mortgage origination fees..... $ 6,005 $ 7,288
Gain (loss) on sales of loans,
net......................... 1,514 482
-------- --------
Total mortgage
origination revenue.... 7,519 7,770
Interest income (expense):
Interest income............... 7,003 14,216
Interest expense,
substantially all to
affiliates.................. (9,685) (9,574)
-------- --------
Net interest income
(expense).............. (2,682) 4,642
Mortgage servicing revenue:
Mortgage servicing income..... 35,723 38,833
Mortgage servicing income from
affiliates.................. 12,503 13,626
Amortization of capitalized
mortgage servicing rights... (20,475) (25,467)
Gain on sales of servicing.... -- --
-------- --------
Net mortgage servicing
revenue................ 27,751 26,992
Other income................... 7,054 1,740
-------- --------
Total revenues........... 39,642 41,144
Expenses:
Salaries and benefits......... 23,433 25,173
General and administrative.... 20,403 20,748
Affiliate profit sharing...... -- --
Occupancy and equipment....... 3,941 3,720
Amortization of goodwill...... 2,226 2,324
-------- --------
Total expenses........... 50,003 51,965
-------- --------
Income (loss) before income
taxes......................... $(10,361) $ (10,821)
======== ========
Net income (loss).............. $ (7,484) $ (8,343)
======== ========
SELECTED OPERATING DATA
(DOLLARS IN MILLIONS):
Volume of loans originated and
acquired...................... $ 2,886 $ 2,538
Loan servicing portfolio (at
period end)................... 33,070 (d)
Loan servicing portfolio
(average)..................... 28,153 33,182
Weighted average interest rate
(at period end)(c)............ 7.98% (d)
Weighted average servicing fee
(average for period)(c)....... 0.299% 0.337%
SELECTED BALANCE SHEET DATA (AT
PERIOD END):
Mortgage loans held for sale... $331,184 (e)
Mortgage servicing rights...... 259,796 (e)
Total assets................... 857,046 (e)
Notes payable.................. 503,000 (e)
Total liabilities.............. 612,311 (e)
Total stockholder's equity..... 244,735 (e)
</TABLE>
- ---------------
(a) Includes operations of Loan America Financial Corporation since its
acquisition in October 1994.
(b) Includes operations of BancPLUS Financial Corporation since its acquisition
in February 1995.
(c) Information not available for 1991 and 1992.
(d) BMC was acquired by HomeSide on May 31, 1996 and, accordingly, its servicing
portfolio is included in HomeSide's servicing portfolio as of May 31, 1996.
(e) BMC was acquired by HomeSide on May 31, 1996 and, accordingly, all of its
assets and liabilities are included in the consolidated balance sheet of
HomeSide as of May 31, 1996.
S-10
<PAGE> 18
RISK FACTORS
In addition to the other information in this Prospectus Supplement and the
accompanying Prospectus, the following factors should be considered carefully
before investing in the securities offered hereby.
The Notes are not an appropriate investment for investors who are
unsophisticated with respect to transactions involving the applicable interest
rate or other indices or formulas. Prospective investors should carefully
consider, among other factors, the matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate or other indices or formulas,
either directly or inversely, entails significant risks that are not associated
with similar investments in a conventional fixed rate or floating rate debt
security. Such risks include, without limitation, the possibility that such
indices or formulas may be subject to significant changes, that no interest will
be payable in respect of such Notes or will be payable at a rate lower than one
applicable to a conventional fixed rate or floating rate debt security issued by
the Issuer at the same time, that repayment of the principal and/or premium, if
any, in respect of such Notes may occur at times other than that expected by the
investors, and that the investors could lose all or a substantial portion of
principal and/or premium, if any, payable with respect to such Notes on the
Maturity Date (as defined under "Description of Notes--General"). Such risks
depend on a number of interrelated factors, including economic, financial and
political events, over which the Issuer has no control. Additionally, if the
formula used to determine the amount of principal, premium, if any, and/or
interest, if any, payable with respect to such Notes contains a multiplier or
leverage factor, the effect of any change in the applicable index or indices or
formula or formulas will be magnified. In recent years, values of certain
indices and formulas have been highly volatile and such volatility may be
expected to continue in the future. Fluctuations in the value of any particular
index or formula that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Issuer may be expected to redeem such Notes when
prevailing interest rates are relatively low, holders generally will not be able
to reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the current interest rate on such Notes.
ABSENCE OF PUBLIC MARKET; NO LISTING
Prior to the offering of any Notes hereby, there has been no public market
for such Notes and there can be no assurance that an active trading market for
such Notes will develop after this offering or if one does develop, the
continued liquidity of such market, or as to the price at which holders would be
able to sell such Notes. Unless otherwise specified in the applicable Pricing
Supplement, HomeSide does not intend to apply for listing of the securities
offered hereby on any securities exchange or through the National Association of
Securities Dealers Automated Quotation System. See "Plan of Distribution."
The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Issuer and the value of the
applicable index or indices or formula or formulas, including the complexity and
volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of such
Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect the
market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Holders may not be able to sell such Notes readily or at prices
that will enable them to realize their anticipated yield. No investor should
purchase Notes unless such investor understands and is able to bear the risk
that such Notes may not be readily saleable, that the value of such Notes will
fluctuate over time and that such fluctuations may be significant.
S-11
<PAGE> 19
CREDIT RATINGS
The credit ratings assigned to the Issuer's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in light
of their particular circumstances.
SUBSTANTIAL LEVERAGE
HomeSide requires substantial financing for its business operations. Such
financing is currently provided under a credit agreement entered into by the
Issuer on January 31, 1997, which amended and restated the credit agreement
originally entered into in connection with the HHI Acquisition (as amended and
restated, the "Bank Credit Agreement"). As of November 30, 1996, the Issuer had
aggregate outstanding indebtedness of approximately $2,010.8 million, and $489.2
million of additional availability under the Bank Credit Agreement. HomeSide may
incur additional indebtedness in the future, subject to certain limitations
contained in the instruments governing its current indebtedness. See
"Description of Certain Indebtedness -- Bank Credit Agreement" in the
accompanying Prospectus. The financial statements of the Issuer do not reflect
debt issued by the Parent. See Note 7 of Notes to Consolidated Financial
Statements of HomeSide on F-11 and "Description of the Parent Notes" in the
accompanying Prospectus.
The degree to which HomeSide is leveraged could have important consequences
to holders of the securities offered hereby, including the following: (i)
HomeSide's ability to grow will depend on its ability to obtain additional
financing in the future for originating loans, investment in servicing rights,
working capital, capital expenditures and general corporate purposes, and that
ability may be impaired; (ii) a substantial portion of HomeSide's cash flow from
operations must be dedicated to the payment of the principal of and interest on
its indebtedness, thereby reducing the funds available to finance operations;
and (iii) HomeSide may be more highly leveraged than certain of its competitors,
which may place HomeSide at a competitive disadvantage and make it more
vulnerable to economic downturns.
AVAILABILITY OF FUNDING SOURCES
In order to operate its business, HomeSide requires substantial financing.
To the extent that HomeSide is not successful in negotiating renewals of its
current borrowings or in arranging new financing, it may have to curtail its
origination activities and/or sell significant portions of its servicing
portfolio, which would have a material adverse effect on HomeSide's business and
results of operations. Among the factors that will affect the Issuer's ability
to refinance its bank credit facilities or the securities offered hereby are
financial market conditions and the value and performance of the Issuer prior to
the time of such refinancing. There can be no assurance that any such
refinancing can be successfully completed. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
HomeSide -- Liquidity and Capital Resources," "Description of Certain
Indebtedness -- Bank Credit Agreement," "Description of the Parent Notes" and
"Description of Debt Securities" in the accompanying Prospectus.
LIMITED OPERATING HISTORY AS AN INDEPENDENT COMPANY; RELATIONSHIP WITH BKB AND
BARNETT
Prior to the consummation of the HLI Acquisition, HLI was a wholly-owned
subsidiary of BKB, and prior to the HHI Acquisition, HHI was a wholly-owned
subsidiary of Barnett. Each has engaged in various intercompany transactions and
arrangements with, and was provided certain administrative services by, its
parent. As a former subsidiary of a national bank and a bank holding company,
HLI and HHI, respectively, have benefitted from their ability to finance certain
acquisitions, their loan production funding and to a lesser extent, their
capital expenditure and working capital requirements, through borrowings from
their respective parents. Following the consummation of the HLI Acquisition,
certain arrangements, including all borrowing arrangements, with BKB were
terminated or modified and, following the consummation of the HHI Acquisition,
such arrangements with Barnett were similarly terminated or modified.
Accordingly, HomeSide no longer relies on such entities and has a limited
history operating as an independent company, and there can be no assurances that
it will be able to successfully operate as an independent company. See "Certain
Relationships and Related Transactions" in the accompanying Prospectus.
S-12
<PAGE> 20
IMPACT OF CHANGES IN INTEREST RATES
Changes in interest rates can have a variety of effects on HomeSide's
business. In particular, changes in interest rates affect the volume of loan
originations and acquisitions, the interest rate spread on loans held for sale,
the amount of gain or loss on the sale of loans and the value of HomeSide's
servicing portfolio.
During periods of declining interest rates, HomeSide typically experiences
an increase in loan originations because of increased home purchases and,
particularly, increased refinancing activity. During 1990 to 1993, a period of
generally declining interest rates, refinancing activity as a percentage of
total originations in the industry increased from 13% in 1990 to 55% in 1993. In
contrast, refinancing activity decreased to 32% of total originations in 1994
and 25% in 1995 as the result of generally increasing interest rates. Increases
in interest rates may adversely affect refinancing activity, which could have an
adverse effect on HomeSide's origination revenues.
HomeSide's loans held for sale are generally funded by borrowings under its
revolving warehouse credit line. HomeSide's net warehouse interest income is the
difference between the interest income it earns on loans held for sale
(generally based on long-term interest rates) and the interest it pays on its
borrowings (generally based on short-term interest rates). To the extent this
spread narrows or becomes negative, HomeSide's results of operations could be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- HomeSide -- Liquidity and Capital
Resources" in the accompanying Prospectus.
In addition, the value of HomeSide's servicing portfolio may be adversely
affected if mortgage interest rates decline and loan prepayments increase. In
periods of declining interest rates, the economic advantages to borrowers of
refinancing their mortgage loans become greater. Increases in the rate of
mortgage loan prepayments reduce the period during which HomeSide receives
servicing income from such loans. HomeSide capitalizes the cost of the
acquisition of servicing rights from third parties and began in 1996 to
capitalize servicing rights on loans that it originates. The value of servicing
rights is based upon the net present value of future cash flows. If the rate of
prepayment of the related loans exceeds the rate assumed by HomeSide, due to a
significant reduction in interest rates or otherwise, the value of the servicing
portfolio will decrease and accelerated amortization of servicing rights may
become necessary. Interest rate changes can also adversely affect the ability to
sell servicing rights to a third party or the proceeds from such a sale.
RESULTS OF RISK MANAGEMENT ACTIVITIES
Gain or loss on sales of mortgage loans may result from changes in interest
rates from the time the interest rate on the customer's loan application is
established to the time HomeSide sells the loan. To manage interest rate risk
HomeSide uses a hedging strategy that is designed to minimize the negative
effect of changes in interest rates on loans that have closed and loans for
which interest rate commitments have been given that are expected to close.
HomeSide then enters into forward sale commitments and option contracts with
Fannie Mae, Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac")
and the private investors to whom HomeSide sells loans based on this analysis.
The results of HomeSide's hedging program depends on a variety of factors,
including the relationship between mortgage rates and Treasury securities, the
hedge instruments used and other factors. To the extent that this strategy
utilized by HomeSide is not successful, HomeSide's profitability may be
adversely affected. For each year since 1990, HomeSide has not experienced
secondary market losses. See "Business -- HomeSide -- Servicing Portfolio
Hedging Program" in the accompanying Prospectus.
LOAN DELINQUENCIES AND DEFAULTS ON LOANS
HomeSide's profitability may be negatively impacted by economic downturns
as the frequency of loan defaults tends to increase. From the time that HomeSide
funds the loans it originates to the time it sells the loans, generally 10 to 40
days, HomeSide is generally at risk for any loan defaults. Once HomeSide sells
the loans it originates, the risk of loss from loan defaults and foreclosure
generally passes to the purchaser or insurer of the loans. In connection
therewith, HomeSide typically makes certain representations and warranties to
the purchasers and insurers of loans and to the purchasers of servicing rights.
Such representations and warranties generally relate to the origination and
servicing of loans in substantial conformance with state and federal laws and
applicable investor guidelines. If a loan defaults and there has been a breach
of
S-13
<PAGE> 21
these representations and warranties, HomeSide becomes liable for the unpaid
principal and interest on the defaulted mortgage loan. In such a case, HomeSide
may be required to repurchase the loan and bear the subsequent loss, if any.
Historically, the impact of loans repurchased by HomeSide as the result of such
breaches of representations and warranties has not been material. However, the
number and amount of loans repurchased in the future could increase due to the
high volume of loans which HomeSide originates, acquires and sells. Accordingly,
HomeSide believes that future charges to net income relating to loan repurchases
may be necessary as loan origination volume increases. See
"Business -- HomeSide -- Secondary Marketing" in the accompanying Prospectus.
HomeSide is also affected by loan delinquencies and defaults on loans that
it services. Under certain types of servicing contracts, particularly contracts
to service loans that have been pooled or securitized, the servicer must advance
all or part of the scheduled payments to the owner of the loan, even when loan
payments are delinquent. Also, to protect their liens on mortgaged properties,
owners of loans usually require the servicer to advance mortgage and hazard
insurance and tax payments on schedule even if sufficient escrow funds are not
available. The servicer will be reimbursed, subject to certain limitations with
respect to Federal Housing Administration ("FHA") and Veterans Administration
("VA") loans, by the mortgage owner or from liquidation proceeds for payments
advanced that the servicer is unable to recover from the mortgagor, although the
timing of such reimbursement is typically uncertain. In the interim, the
servicer must absorb the cost of funds advanced during the time the advance is
outstanding. Further, the servicer must bear the increased costs of attempting
to collect on delinquent and defaulted loans. HomeSide also foregoes servicing
income from the time such loan becomes delinquent until foreclosure when, if any
proceeds are available, such amounts may be recovered.
HomeSide periodically incurs losses attributable to servicing FHA and VA
loans for investors, including actual losses for final disposition of loans that
have been foreclosed or assigned to the FHA or VA and accrued interest on such
FHA or VA loans for which payment has not been received. HLI's servicing losses
on investor-owned loans have historically primarily represented losses on VA
loans. Because the total principal amount of FHA loans is guaranteed, losses on
such loans are generally limited to expenses of collection. HomeSide has
experienced minimal losses from FHA loans. With respect to VA loans, the VA
guarantees the initial losses on a loan. The guaranteed amount generally ranges
from 20% to 35% of the original principal balance. Before each foreclosure sale,
the VA determines whether to bid by comparing the estimated net sale proceeds to
the outstanding principal balance and the servicer's accumulated reimbursable
costs and fees. If this amount is a loss and exceeds the guaranteed amount, the
VA typically issues a no-bid and pays the servicer the guaranteed amount.
Whenever a no-bid is issued, the servicer absorbs the loss, if any, in excess of
the sum of the guaranteed principal and amounts recovered at the foreclosure
sale. HomeSide's historical delinquency and foreclosure rate experience on VA
loans has generally been consistent with that of the industry. There can be no
assurance that HomeSide's servicing losses on investor-owned loans will not be
greater in the future.
Economic downturns in states in which HomeSide has a significant
concentration of business could have an adverse impact on HomeSide's results of
operations. Loans in Florida and California represented 19.6% and 15.6%,
respectively, of HomeSide's servicing portfolio at November 30, 1996. HomeSide
originates and purchases servicing rights for mortgage loans nationwide and
actively monitors the geographic distribution of its servicing portfolio to
maintain a mix that it deems appropriate and makes adjustments as it deems
necessary.
COMPETITION
The mortgage banking business is highly competitive. HomeSide competes with
other mortgage banking companies, commercial banks, savings associations, credit
unions and other financial institutions in every aspect of its business,
including funding and purchasing loans from mortgage brokers, purchasing loans
from correspondents and acquiring loan servicing rights and origination
capabilities. HomeSide competes with mortgage banking companies and other
financial institutions that have substantially greater financial resources,
greater operating efficiencies and longer operating histories than HomeSide.
Furthermore, increasing consolidation in the mortgage industry is leading to an
increased market share for the largest mortgage companies. At the same time,
Fannie Mae and FHLMC are developing technologies and business practices that
could reduce their reliance on large mortgage companies for loan production and
enable them to access
S-14
<PAGE> 22
smaller producers for volume. To the extent that market pricing becomes more
competitive, HomeSide may be unable to achieve its planned level of originations
or consummate acquisitions of servicing rights at a satisfactory cost. Retail
mortgage banking companies have direct access to borrowers and generally are
able to sell their loans to the same entities that purchase HomeSide's loans.
HomeSide depends primarily on mortgage brokers and correspondents for
originating new loans. Competitors also seek to establish relationships with
mortgage brokers and correspondents, who are not obligated by contract or
otherwise to continue to do business with HomeSide.
REGULATION, POSSIBLE CHANGES AND RELATED LEGAL MATTERS
HomeSide's mortgage banking business is subject to the rules and
regulations of the Department of Housing and Urban Development ("HUD"), FHA, VA,
Fannie Mae, FHLMC, Government National Mortgage Association ("GNMA") and other
regulatory agencies with respect to originating, processing, underwriting,
selling, securitizing and servicing mortgage loans. In addition, there are other
federal and state statutes and regulations affecting such activities. These
rules and regulations, among other things, impose licensing obligations on
HomeSide, prohibit discrimination and establish underwriting guidelines which
include provisions for inspections and appraisals, require credit reports on
prospective borrowers and fix maximum loan amounts. Moreover, lenders such as
HomeSide are required annually to submit audited financial statements to Fannie
Mae, FHLMC, GNMA and HUD and to comply with each regulatory entity's own
financial requirements. HomeSide's business is also subject to examination by
Fannie Mae, FHLMC and GNMA and state regulatory agencies at all times to assure
compliance with applicable regulations, policies and procedures.
Mortgage origination activities are subject to the provisions of various
Federal and state statutes including, among others, the Equal Credit Opportunity
Act, the Federal Truth-in-Lending Act, the Real Estate Settlement Procedures Act
("RESPA"), the Fair Housing Act, and the regulations promulgated thereunder,
which, among other provisions, prohibit discrimination, prohibit unfair and
deceptive trade practices, and require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs, limit
fees and charges paid by borrowers and lenders, and otherwise regulate terms and
conditions of credit and the procedures by which credit is offered and
administered. Many of the aforementioned regulatory requirements are designed to
protect the interests of consumers, while others protect the owners or insurers
of mortgage loans. Failure to comply with these requirements can lead to loss of
approved status, termination of servicing contracts without compensation to the
servicers, demands for indemnification or loan repurchases, class action
lawsuits and administrative enforcement actions. Such regulatory requirements
are subject to change from time to time and may in the future become more
restrictive, thereby making compliance more difficult or expensive or otherwise
restricting HomeSide's ability to conduct its business as such business is now
conducted.
HomeSide's net income reflects a reduction in interest expense on its
borrowings with depository institutions for custodial balances placed with such
institutions. Net income could be adversely affected to the extent that proposed
revisions of applicable bank regulations cause these escrow accounts to be
recharacterized as demand deposit accounts, thereby requiring reserves to be
established with Federal Reserve Banks, which would reduce the amount of the
credit. Other regulatory changes or interpretations if applied retroactively to
change the ability of HomeSide to receive credit for escrow balances would
adversely affect HomeSide.
In addition, certain states require that interest be paid to mortgagors on
funds deposited by them in escrow to cover mortgage-related payments such as
property taxes and insurance premiums. Federal legislation has in the past been
introduced that would, if ever enacted, revise current escrow regulations and
establish a uniform interest payment requirement in all states. If such federal
legislation were enacted or if other states enact legislation relating to
payment of, or increases in the rate of, interest on escrow balances, or if such
legislation were retroactively applied to loans in HomeSide's servicing
portfolio, HomeSide's earnings would be adversely affected.
Prior to the HLI Acquisition, HLI was a wholly-owned operating subsidiary
of a national bank, and subject to substantially all of the regulations and
restrictions applicable to a national bank. Prior to the HHI Acquisition, HHI
was a wholly-owned subsidiary of a bank holding company. During the period that
BKB or
S-15
<PAGE> 23
Barnett, or any of their subsidiaries, retains a material ownership interest in
HomeSide (either directly or through the Parent), HomeSide (i) will continue to
be under the jurisdiction, supervision, and examining authority of the Office of
the Comptroller of the Currency ("OCC") and (ii) may only engage in activities
that are part of, or incidental to, the business of banking. The OCC has
specifically ruled that mortgage banking is a proper incident to the business of
banking.
In recent years, the mortgage banking industry has been subject to class
action lawsuits which allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges and the calculation of escrow amounts. Class action lawsuits may
continue to be filed in the future against the mortgage banking industry
generally. In recently denying a motion to dismiss in a purported class action
brought against certain unrelated mortgage companies in a federal court in
Virginia, the court stated that the payment of certain fees to mortgage brokers
violates RESPA. No prediction can be made as to whether the ultimate decision in
such class action will be adverse to the defendant mortgage companies, and,
while the matter is still in a preliminary stage, based upon available
information, management of HomeSide believes that an adverse result ultimately
having general application to the mortgage banking industry (including
HomeSide), would not have a material adverse impact on the consolidated
financial position of HomeSide, nor upon the consolidated results of operations
for any fiscal period. Defending such lawsuits in the future may be expensive
and any adverse judgments may make it more expensive or difficult for HomeSide
to conduct its business as currently conducted. See "Business -- HomeSide --
Litigation" in the accompanying Prospectus.
CONTINUATION OF FEDERAL PROGRAMS; AVAILABILITY OF ACTIVE SECONDARY MARKET
HomeSide's ability to sell mortgage loans and mortgage-backed securities is
largely dependent upon the continuation of programs of Fannie Mae, FHLMC, GNMA
and private investors. These entities facilitate the sale of mortgage loans and
mortgage-backed securities. HomeSide's continued eligibility to participate in
such programs is also a necessary element to the ability to sell mortgage loans.
Although HomeSide is not aware of any proposed discontinuation of, or
significant reduction in, the various programs of Fannie Mae, FHLMC, GNMA or
private investors, any such discontinuation or reduction in the operation of
such programs could have a material adverse effect on HomeSide's operations.
HomeSide expects that it will continue to remain eligible to participate in such
programs but any significant impairment of such eligibility could also
materially and adversely affect its operations.
The requirements of loans accepted under such programs may be changed from
time to time by the sponsoring entity. The profitability of participating in
specific programs may vary depending on a number of factors, including the
administrative costs to HomeSide of originating and purchasing qualifying loans.
There can be no assurance that HomeSide will be successful in effecting the
sale of mortgage loans at the historic price or volume levels in any particular
future periods. Any significant change in the secondary market level of activity
or underwriting criteria of Fannie Mae, FHLMC or private investors could have a
material adverse effect on the gain or loss on sales of mortgage loans recorded
by HomeSide and therefore on HomeSide's results of operations.
PRINCIPAL SHAREHOLDERS
The Principal Shareholders of the Parent collectively own approximately 79%
of the outstanding shares of Common Stock of the Parent. Accordingly, the
Principal Shareholders of the Parent, if they act in concert, are able to
control the election of the Board of Directors of the Parent and thus the
direction and future operations of the Issuer without the supporting vote of any
other stockholder of the Parent, including decisions regarding acquisitions and
other business opportunities, the declaration of dividends and the issuance of
additional shares of common stock and other securities of the Issuer. Certain
decisions concerning the operations or financial structure of HomeSide may
present conflicts of interest between the owners of the Parent's capital stock
and the holders of the securities offered hereby. See "Security Ownership of
Certain Beneficial Owners and Management" and "Certain Relationships and Related
Transactions" in the accompanying Prospectus.
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DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of 1997, as amended or modified from time to time (the
"Indenture"), between the Issuer and The Bank of New York, as trustee (the
"Trustee"). The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended. The following summary of certain provisions of the
Notes and the Indenture does not purport to be complete and is qualified in its
entirety by reference to the actual provisions of the Notes and the Indenture.
Capitalized terms used but not defined herein shall have the meanings given to
them in the accompanying Prospectus, the Notes or the Indenture, as the case may
be. The term "Debt Securities," as used in this Prospectus Supplement, refers to
all debt securities, including the Notes, issued and issuable from time to time
under the Indenture. The following description of Notes will apply to each Note
offered hereby unless otherwise specified in the applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be unsecured general obligations of the Issuer and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Issuer
from time to time outstanding. The Indenture does not limit the aggregate
initial offering price of Debt Securities that may be issued thereunder and Debt
Securities may be issued thereunder from time to time in one or more series up
to the aggregate initial offering price from time to time authorized by the
Issuer for each series. The Issuer may, from time to time, without the consent
of the holders of the Notes, provide for the issuance of Notes or other Debt
Securities under the Indenture in addition to the $1,000,000,000 aggregate
initial offering price of Notes offered hereby. The Indenture does not provide
holders of the Notes any protection should there be a highly leveraged
transaction involving the Issuer. See "Description of Debt Securities --
General" in the accompanying Prospectus.
The Notes are currently limited to up to $1,000,000,000 aggregate initial
offering price. Each Note will mature on any day nine months or more from its
date of issue (the "Stated Maturity Date"), as specified in the applicable
Pricing Supplement, unless the principal thereof (or any installment of
principal thereof) becomes due and payable prior to the Stated Maturity Date,
whether by the declaration of acceleration of maturity, notice of redemption at
the option of the Issuer, notice of the holder's option to elect repayment or
otherwise (the Stated Maturity Date or such prior date, as the case may be, is
herein referred to as the "Maturity Date" with respect to the principal of such
Note repayable on such date). Unless otherwise specified in the applicable
Pricing Supplement, interest-bearing Notes will either be Fixed Rate Notes or
Floating Rate Notes, as specified in the applicable Pricing Supplement. The
Issuer may also issue Discount Notes, Indexed Notes and Amortizing Notes (as
such terms are hereinafter defined).
The Notes will be denominated in, and payments of principal, premium, if
any, and/or interest, if any, in respect thereof will be made in, United States
dollars. References herein to "United States dollars," "U.S. dollars" or "$" are
to the lawful currency of the United States of America (the "United States").
Interest rates offered by the Issuer with respect to the Notes may differ
depending upon, among other factors, the aggregate principal amount of Notes
purchased in any single transaction. Notes with different variable terms other
than interest rates may also be offered concurrently to different investors.
Interest rates or formulas and other terms of Notes are subject to change by the
Issuer from time to time, but no such change will affect any Note previously
issued or as to which an offer to purchase has been accepted by the Issuer.
Each Note will be issued as a Book-Entry Note represented by one or more
fully registered Global Securities or as a fully registered Certificated Note.
The minimum denominations of each Note will be $1,000 and integral multiples
thereof, unless otherwise specified in the applicable Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by the Issuer through the Trustee to the
Depository. See "--Book-Entry Notes." In the case of Certificated Notes, payment
of principal and premium, if any, due on the Maturity Date will be made in
immediately available funds upon presentation and surrender thereof (and, in the
case of any repayment on an Optional Repayment Date, upon submission of a duly
completed election form in accordance with the provisions
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<PAGE> 25
described below) at the office or agency maintained by the Issuer for such
purpose in the Borough of Manhattan, The City of New York, currently the
principal corporate trust office of the Trustee located at 101 Barclay Street,
Floor 21 West, New York, New York 10286. Payment of interest, if any, due on the
Maturity Date of a Certificated Note will be made to the person to whom payment
of the principal thereof and premium, if any, thereon shall be made. Payment of
interest, if any, due on a Certificated Note on any Interest Payment Date (as
hereinafter defined) other than the Maturity Date will be made by check mailed
to the address of the Holder entitled thereto as such address shall appear in
the Security Register of the Issuer. Notwithstanding the foregoing, a Holder of
$10,000,000 or more in aggregate principal amount of Certificated Notes (whether
having identical or different terms and provisions) will be entitled to receive
interest payments, if any, on any Interest Payment Date other than the Maturity
Date by wire transfer of immediately available funds if appropriate wire
transfer instructions have been received in writing by the Trustee not less than
15 days prior to such Interest Payment Date. Any such wire transfer instructions
received by the Trustee shall remain in effect until revoked by such Holder.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day (as hereinafter defined). "London Business Day" means a day on which
dealings in the Designated LIBOR Currency (as hereinafter defined) are
transacted in the London interbank market.
Book-Entry Notes may be transferred or exchanged only through the
Depository. See "--Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the Issuer
for such purpose in the Borough of Manhattan, The City of New York, currently
the principal corporate trust office of the Trustee located at 101 Barclay
Street, Floor 21 West, New York, New York 10286. No service charge will be made
by the Issuer or the Trustee for any such registration of transfer or exchange
of Notes, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith
(other than exchanges pursuant to the Indenture not involving any transfer).
The defeasance and covenant defeasance provisions contained in the
Indenture shall apply to the Notes.
REDEMPTION AT THE OPTION OF THE ISSUER
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Issuer prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Issuer
on any date on and after the applicable Initial Redemption Date in whole or from
time to time in part in increments of $1,000 or such other minimum denomination
specified in such Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such minimum denomination), at the
applicable Redemption Price (as hereinafter defined), together with unpaid
interest accrued thereon to the date of redemption, on written notice given to
the holders thereof not more than 60 nor less than 30 calendar days prior to the
date of redemption and in accordance with the provisions of the Indenture.
"Redemption Price," with respect to a Note, means an amount equal to the Initial
Redemption Percentage specified in the applicable Pricing Supplement (as
adjusted by the Annual Redemption Percentage Reduction, if applicable)
multiplied by the unpaid principal amount to be redeemed. The Initial Redemption
Percentage, if any, applicable to a Note shall decline at each anniversary of
the Initial Redemption Date by an amount equal to the applicable Annual
Redemption Percentage Reduction, if any, until the Redemption Price is equal to
100% of the unpaid principal amount to be redeemed. For a discussion of the
redemption of Discount Notes, see "--Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Issuer at the option of the holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the holders thereof on any
Optional
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<PAGE> 26
Repayment Date in whole or from time to time in part in increments of $1,000 or
such other minimum denomination specified in the applicable Pricing Supplement
(provided that any remaining principal amount thereof shall be at least $1,000
or such other minimum denomination), at a repayment price equal to 100% of the
unpaid principal amount to be repaid, together with unpaid interest accrued
thereon to the date of repayment. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its office maintained for such purpose in the
Borough of Manhattan, The City of New York, currently the principal corporate
trust office of the Trustee located at 101 Barclay Street, Floor 21 West, New
York, New York 10286, not more than 60 nor less than 30 calendar days prior to
the date of repayment. Exercise of such repayment option by the holder will be
irrevocable. For a discussion of the repayment of Discount Notes, see
"--Discount Notes."
Only the Depository may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any portion
of the Book-Entry Notes represented by such Global Securities repaid must
instruct the Participant (as hereinafter defined) through which they own their
interest to direct the Depository to exercise the repayment option on their
behalf by delivering the related Global Security and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Security
and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants from
Beneficial Owners of Global Securities relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depository's
records, to the Trustee. See "--Book-Entry Notes."
If applicable, the Issuer will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder, and any other securities laws or
regulations in connection with any such repayment.
The Issuer may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Issuer may, at the
discretion of the Issuer, be held, resold or surrendered to the Trustee for
cancellation.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will be made in an amount equal to the interest accrued from and including
the immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as hereinafter defined)
and the related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the holder on such next
succeeding Record Date. Unless otherwise specified
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in the applicable Pricing Supplement, a "Record Date" shall be the fifteenth
calendar day (whether or not a Business Day) immediately preceding the related
Interest Payment Date.
Fixed Rate Notes
Interest on Fixed Rate Notes will be payable on and
of each year or on such other date(s) specified in the applicable
Pricing Supplement (each, an "Interest Payment Date" with respect to Fixed Rate
Notes) and on the Maturity Date. Unless otherwise specified in the applicable
Pricing Supplement, interest on Fixed Rate Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue on
such payment for the period from and after such Interest Payment Date or the
Maturity Date, as the case may be, to the date of such payment on the next
succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement. The applicable Pricing Supplement will specify
certain terms with respect to which each Floating Rate Note is being delivered,
including: whether such Floating Rate Note is a "Regular Floating Rate Note," a
"Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," the Fixed
Rate Commencement Date, if applicable, Fixed Interest Rate, if applicable,
Interest Rate Basis or Bases, Initial Interest Rate, if any, Initial Interest
Reset Date, Interest Reset Dates, Interest Payment Dates, Index Maturity,
Maximum Interest Rate and/or Minimum Interest Rate, if any, and Spread and/or
Spread Multiplier, if any, as such terms are defined below. If one or more of
the applicable Interest Rate Bases is LIBOR or the CMT Rate, the applicable
Pricing Supplement will also specify the Designated LIBOR Currency and
Designated LIBOR Page or the Designated CMT Maturity Index and Designated CMT
Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the applicable
Pricing Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (y) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (z) the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in
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the applicable Pricing Supplement or, if no such Fixed Interest Rate is
specified, the interest rate in effect thereon on the day immediately
preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as hereinafter defined) immediately preceding
such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided, however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Business Day, such Interest Reset Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the Eleventh District Cost of Funds Rate, which will be calculated on
such Interest Determination Date. The "Interest Determination Date" with respect
to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate
and the Prime Rate will be the second Business Day immediately preceding the
applicable Interest Reset Date; the "Interest Determination Date" with respect
to the Eleventh District Cost of Funds Rate will be the last working day of the
month immediately preceding the applicable Interest Reset
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Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") publishes the Index (as hereinafter defined); and the "Interest
Determination Date" with respect to LIBOR will be the second London Business Day
immediately preceding the applicable Interest Reset Date, unless the Designated
LIBOR Currency is British pounds sterling, in which case the "Interest
Determination Date" will be the applicable Interest Reset Date. With respect to
the Treasury Rate, the "Interest Determination Date" will be the day in the week
in which the applicable Interest Reset Date falls on which day Treasury Bills
(as hereinafter defined) are normally auctioned (Treasury Bills are normally
sold at an auction held on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday); provided,
however, that if an auction is held on the Friday of the week preceding the
applicable Interest Reset Date, the "Interest Determination Date" will be such
preceding Friday; provided, further, that if the Interest Determination Date
would otherwise fall on an Interest Reset Date, then such Interest Reset Date
will be postponed to the next succeeding Business Day. The "Interest
Determination Date" pertaining to a Floating Rate Note the interest rate of
which is determined by reference to two or more Interest Rate Bases will be the
most recent Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be determined
as of such date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either or
both of the following: (i) a Maximum Interest Rate, or ceiling, that may accrue
during any Interest Period and (ii) a Minimum Interest Rate, or floor, that may
accrue during any Interest Period. In addition to any Maximum Interest Rate that
may apply to any Floating Rate Note, the interest rate on Floating Rate Notes
will in no event be higher than the maximum rate permitted by New York law, as
the same may be modified by United States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date" with respect to Floating Rate Notes) and, in each case, on the
Maturity Date. If any Interest Payment Date other than the Maturity Date for any
Floating Rate Note would otherwise be a day that is not a Business Day, such
Interest Payment Date will be postponed to the next succeeding Business Day,
except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on a
day that is not a Business Day, the required payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day as if made on
the date such payment was due, and no interest will accrue on such payment for
the period from and after the Maturity Date to the date of such payment on the
next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR
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or the Prime Rate, or by the actual number of days in the year in the case of
Floating Rate Notes for which an applicable Interest Rate Basis is the CMT Rate
or the Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, the interest factor for Floating Rate Notes for which the interest
rate is calculated with reference to two or more Interest Rate Bases will be
calculated in each period in the same manner as if only the applicable Interest
Rate Basis specified in the applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, The Bank
of New York will be the "Calculation Agent." Upon request of the holder of any
Floating Rate Note, the Calculation Agent will disclose the interest rate then
in effect and, if determined, the interest rate that will become effective as a
result of a determination made for the next succeeding Interest Reset Date with
respect to such Floating Rate Note. Unless otherwise specified in the applicable
Pricing Supplement, the "Calculation Date," if applicable, pertaining to any
Interest Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date or, if such day is not a Business Day,
the next succeeding Business Day or (ii) the Business Day immediately preceding
the applicable Interest Payment Date or the Maturity Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent for negotiable
United States dollar certificates of deposit of major United States money center
banks for negotiable certificates of deposit with a remaining maturity closest
to the Index Maturity specified in the applicable Pricing Supplement in an
amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed on
the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date falls. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as
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published in H.15(519). If such rate is no longer published or is not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate on such CMT Rate Interest Determination Date will be such treasury constant
maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the CMT Rate Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in H.15(519). If such information is not provided by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate on
the CMT Rate Interest Determination Date will be calculated by the Calculation
Agent and will be a yield to maturity, based on the arithmetic mean of the
secondary market offered rates as of approximately 3:30 P.M., New York City
time, on such CMT Rate Interest Determination Date reported, according to their
written records, by three leading primary United States government securities
dealers in The City of New York (which may include the Agents or their
affiliates) (each, a "Reference Dealer") selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less than
such Designated CMT Maturity Index minus one year. If the Calculation Agent is
unable to obtain three such Treasury Note quotations, the CMT Rate on such CMT
Rate Interest Determination Date will be calculated by the Calculation Agent and
will be a yield to maturity based on the arithmetic mean of the secondary market
offered rates as of approximately 3:30 P.M., New York City time, on such CMT
Rate Interest Determination Date of three Reference Dealers in The City of New
York (from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100 million. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offered rates obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided, however, that if fewer than
three Reference Dealers so selected by the Calculation Agent are quoting as
mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date. If two Treasury Notes with an original maturity as described
in the second preceding sentence have remaining terms to maturity equally close
to the Designated CMT Maturity Index, the Calculation Agent will obtain
quotations for the Treasury Note with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such service)
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519). If no such page is specified in the applicable Pricing Supplement,
the Designated CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated or, if no such maturity is specified in the applicable
Pricing Supplement, 2 years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the heading "Commercial Paper." In the event that such rate is not published by
3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate on such
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Commercial Paper Rate Interest Determination Date will be the Money Market Yield
of the rate for commercial paper having the Index Maturity specified in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Commercial Paper" (with an Index Maturity of one month or three months
being deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Commercial Paper Rate on such Commercial Paper Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the Money Market Yield of the arithmetic mean of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in The
City of New York (which may include the Agents or their affiliates) selected by
the Calculation Agent for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement placed for an industrial issuer whose bond
rating is "Aa", or the equivalent, from a nationally recognized statistical
rating organization; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined as of such Commercial Paper Rate Interest Determination
Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable Interest Reset Period.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be
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calculated by the Calculation Agent and will be the arithmetic mean of the rates
for the last transaction in overnight United States dollar federal funds
arranged by three leading brokers of federal funds transactions in The City of
New York (which may include the Agents or their affiliates) selected by the
Calculation Agent prior to 9:00 A.M., New York City time, on such Federal Funds
Rate Interest Determination Date; provided, however, that if the brokers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Federal Funds Rate determined as of such Federal Funds Rate Interest
Determination Date will be the Federal Funds Rate in effect on such Federal
Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Designated LIBOR Currency having the
Index Maturity specified in such Pricing Supplement, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for
deposits in the Designated LIBOR Currency having the Index Maturity
specified in such Pricing Supplement, commencing on such Interest Reset
Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date. If fewer than two such
offered rates so appear, or if no such rate so appears, as applicable,
LIBOR on such LIBOR Interest Determination Date will be determined in
accordance with the provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks (which may include affiliates of the Agents) in the
London interbank market, as selected by the Calculation Agent, to provide
the Calculation Agent with its offered quotation for deposits in the
Designated LIBOR Currency for the period of the Index Maturity specified in
the applicable Pricing Supplement, commencing on the applicable Interest
Reset Date, to prime banks in the London interbank market at approximately
11:00 A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount that is representative for a single transaction in the
Designated LIBOR Currency in such market at such time. If at least two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., in the applicable Principal Financial Center, on such LIBOR Interest
Determination Date by three major banks (which may include affiliates of
the Agents) in such Principal Financial Center selected by the Calculation
Agent for loans in the Designated LIBOR Currency to leading European banks,
having the Index Maturity specified in the applicable Pricing Supplement
and in a principal amount that is representative for a single transaction
in the Designated LIBOR Currency in such market at such time; provided,
however, that if the banks so selected by the Calculation Agent are not
quoting as mentioned in this sentence, LIBOR determined as of such LIBOR
Interest Determination Date will be LIBOR in effect on such LIBOR Interest
Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page
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specified in such Pricing Supplement (or any other page as may replace such page
on such service) for the purpose of displaying the London interbank rates of
major banks for the Designated LIBOR Currency, or (b) if "LIBOR Telerate" is
specified in the applicable Pricing Supplement or neither "LIBOR Reuters" nor
"LIBOR Telerate" is specified in the applicable Pricing Supplement as the method
for calculating LIBOR, the display on the Dow Jones Telerate Service (or any
successor service) on the page specified in such Pricing Supplement (or any
other page as may replace such page on such service) for the purpose of
displaying the London interbank rates of major banks for the Designated LIBOR
Currency.
"Principal Financial Center" means the capital city of the country to which
the Designated LIBOR Currency relates (or, in the case of European Currency
Units ("ECU"), Luxembourg), except, in each case, that with respect to United
States dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Italian lire and Swiss francs, the "Principal Financial Center" shall
be The City of New York, Sydney, Toronto, Frankfurt, Amsterdam and Zurich,
respectively.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate shall be the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent. If fewer than four such quotations are so provided, then the Prime Rate
shall be the arithmetic mean of four prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date as furnished in The City
of New York by the major money center banks, if any, that have provided such
quotations and by a reasonable number of substitute banks or trust companies
(which may include affiliates of the Agents) to obtain four such prime rate
quotations, provided such substitute banks or trust companies are organized and
doing business under the laws of the United States, or any State thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by the
Calculation Agent to provide such rate or rates; provided, however, that if the
banks or trust companies so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Prime Rate determined as of such Prime Rate
Interest Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable Pricing
Supplement, as such rate is published in H.15(519) under the heading "Treasury
Bills-auction average (investment)" or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the auction average rate of such
Treasury Bills (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the Auction of Treasury Bills having the Index Maturity specified in the
applicable Pricing Supplement are not reported as provided by 3:00 P.M., New
York City time, on the related Calculation Date, or if no such Auction is held,
then the Treasury Rate will be
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calculated by the Calculation Agent and will be a yield to maturity (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Treasury Rate
Interest Determination Date, of three leading primary United States government
securities dealers (which may include the Agents or their affiliates) selected
by the Calculation Agent, for the issue of Treasury Bills with a remaining
maturity closest to the Index Maturity specified in the applicable Pricing
Supplement; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate determined as of such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any other
term relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
DISCOUNT NOTES
The Issuer may offer Notes ("Discount Notes") from time to time that have
an Issue Price (as specified in the applicable Pricing Supplement) that is less
than 100% of the principal amount thereof (i.e., par) by more than a percentage
equal to the product of 0.25% and the number of full years to the Stated
Maturity Date. Discount Notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to
herein as the "Discount." In the event of redemption, repayment or acceleration
of maturity of a Discount Note, the amount payable to the holder of such
Discount Note will be equal to the sum of (i) the Issue Price (increased by any
accruals of Discount) and, in the event of any redemption of such Discount Note
(if applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) and (ii) any unpaid
interest accrued thereon to the date of such redemption, repayment or
acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method. The
constant yield will be calculated using a 30-day month, 360-day year convention,
a compounding period that, except for the Initial Period (as hereinafter
defined), corresponds to the shortest period between Interest Payment Dates for
the applicable Discount Note (with ratable accruals within a compounding
period), a coupon rate equal to the initial coupon rate applicable to such
Discount Note and an assumption that the maturity of such Discount Note will not
be accelerated. If the period from the date of issue to the initial Interest
Payment Date for a Discount Note (the "Initial Period") is shorter than the
compounding period for such Discount Note, a proportionate amount of the yield
for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then such period will be divided into a
regular compounding period and a short period with the short period being
treated as provided in the preceding sentence. The accrual of the applicable
Discount may differ from the accrual of original issue discount for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), certain Discount
Notes may not be treated as having original issue discount within the meaning of
the Code, and Notes other than Discount Notes may be treated as issued with
original issue discount for federal income tax purposes. See "United States
Federal Income Tax Considerations".
INDEXED NOTES
The Issuer may from time to time offer Notes ("Indexed Notes") with the
amount of principal, premium and/or interest payable in respect thereof to be
determined with reference to the price or prices of specified
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commodities or stocks or to other items, in each case as specified in the
applicable Pricing Supplement. In certain cases, holders of Indexed Notes may
receive a principal payment on the Maturity Date that is greater than or less
than the principal amount of such Indexed Notes depending upon the relative
value on the Maturity Date of the specified indexed item. Information as to the
method for determining the amount of principal, premium, if any, and/or
interest, if any, payable in respect of Indexed Notes, certain historical
information with respect to the specified indexed item and any material tax
considerations associated with an investment in Indexed Notes will be specified
in the applicable Pricing Supplement. See also "Risk Factors."
AMORTIZING NOTES
The Issuer may from time to time offer Notes ("Amortizing Notes") with the
amount of principal thereof and interest thereon payable in installments over
the term of such Notes. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. Further information concerning
additional terms and provisions of Amortizing Notes will be specified in the
applicable Pricing Supplement, including a table setting forth repayment
information for such Amortizing Notes.
BOOK-ENTRY NOTES
The Issuer has established a depositary arrangement with the Depository
with respect to the Book-Entry Notes, the terms of which are summarized below.
Any additional or differing terms of the depositary arrangement with respect to
the Book-Entry Notes will be described in the applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes of like tenor and terms up to
$200,000,000 aggregate principal amount will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depository and will be registered in the name of the
Depository or a nominee of the Depository. No Global Security may be transferred
except as a whole by the Depository to a nominee of the Depository or by a
nominee of the Depository to the Depository or to another nominee of the
Depository, or by the Depository or such nominee to a successor of the
Depository or a nominee of such successor.
So long as the Depository or its nominee is the registered owner of a
Global Security, the Depository or its nominee, as the case may be, will be the
sole holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided below, the Beneficial Owners of the
Global Security or Securities representing Book-Entry Notes will not be entitled
to receive physical delivery of Certificated Notes and will not be considered
the holders thereof for any purpose under the Indenture, and no Global Security
representing Book-Entry Notes shall be exchangeable or transferable.
Accordingly, each Beneficial Owner must rely on the procedures of the Depository
and, if such Beneficial Owner is not a Participant, on the procedures of the
Participant through which such Beneficial Owner owns its interest in order to
exercise any rights of a holder under such Global Security or the Indenture. The
laws of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in certificated form. Such limits and laws
may impair the ability to transfer beneficial interests in a Global Security
representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depository
notifies the Issuer that it is unwilling or unable to continue as Depository for
the Global Securities or the Issuer becomes aware that the Depository has ceased
to be a clearing agency registered under the Exchange Act and, in any such case,
the Issuer shall not have appointed a successor to the Depository within 90 days
thereafter, (ii) the Issuer, in its sole discretion, determines that the Global
Securities shall be exchangeable for Certificated Notes or (iii) an Event of
Default shall have occurred and be continuing with respect to the Notes under
the Indenture. Upon any such exchange, the Certificated Notes shall be
registered in the names of the Beneficial Owners of the Global Security or
Securities representing Book-Entry Notes, which names shall be provided by the
Depository's relevant Participants (as identified by the Depository) to the
Trustee.
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The following is based on information furnished by the Depository:
The Depository will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depository's partnership
nominee).
The Depository is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository holds securities that its
participants ("Participants") deposit with the Depository. The Depository
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depository ("Direct Participants")
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. The
Depository is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the Depository's
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depository and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depository's system must be
made by or through Direct Participants, which will receive a credit for
such Book-Entry Notes on the Depository's records. The ownership interest
of each actual purchaser of each Book-Entry Note represented by a Global
Security ("Beneficial Owner") is in turn to be recorded on the records of
Direct Participants and Indirect Participants. Beneficial Owners will not
receive written confirmation from the Depository of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners of a Global Security
representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except in the event that
use of the book-entry system for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depository
are registered in the name of the Depository's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depository and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depository has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the
Depository's records reflect only the identity of the Direct Participants
to whose accounts such Book-Entry Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depository to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
The Depository and Cede & Co. will take any action permitted to be
taken by a holder of Notes only at the direction of one or more
Participants to whose accounts interests in the Global Securities are
credited and only in respect of such portion of the aggregate principal
amount of Notes as to which such Participant or Participants has or have
given such direction.
Principal, premium, if any, and/or interest, if any, payments on the
Global Securities representing the Book-Entry Notes will be made in
immediately available funds to the Depository. The Depository's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their
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respective holdings shown on the Depository's records unless the Depository
has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of the
Depository, the Trustee or the Issuer, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to the Depository is
the responsibility of the Issuer and the Trustee, disbursement of such
payments to Direct Participants shall be the responsibility of the
Depository, and disbursement of such payments to the Beneficial Owners
shall be the responsibility of Direct Participants and Indirect
Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being
redeemed, the Depository's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any option to elect to have
its Book-Entry Notes repaid by the Issuer, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depository's records, to the Trustee. The requirement for physical delivery
of Book-Entry Notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depository's records.
The Depository may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Issuer or the Trustee. Under such circumstances,
in the event that a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
The Issuer may decide to discontinue use of the system of book-entry
transfers through the Depository (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depository and the
Depository's system has been obtained from sources that the Issuer believes to
be reliable, but the Issuer takes no responsibility for the accuracy thereof.
Neither the Issuer, the Trustee nor the Agents will have any responsibility
or obligation to Participants, or the persons for whom they act as nominees,
with respect to the accuracy of the records of the Depository, its nominee or
any Participant with respect to any ownership interest in the Notes, or payments
to, or the providing of notice to Participants or Beneficial Owners.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Agents, and, so long as the
Notes trade in the Depository's Same-Day Funds Settlement System, secondary
market trading activity in the Notes will settle, in immediately available
funds. All payments of principal and interest will be made by the Issuer in
immediately available funds.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. Persons considering the
purchase of the Notes should consult their own tax advisors concerning the
application of United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the Notes arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate that is described in Section 7701(a)(30)(D)
of the Internal Revenue Code of 1986, as amended (the "Code"), or a trust that
is described in Section 7701(a)(30)(E) of the Code or (iv) any other person
whose income or gain in respect of a Note is effectively connected with the
conduct of a United States trade or business. As used herein, the term "non-U.S.
Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest
Payments of interest on a Note generally will be taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting).
Original Issue Discount
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). The following summary is based upon final Treasury regulations
(the "OID Regulations") released by the Internal Revenue Service ("IRS") on
January 27, 1994, as amended on June 11, 1996, under the original issue discount
provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
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Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States Federal
income tax purposes as it accrues under a constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of tax accounting. In general, the amount of
original issue discount included in income by the initial U.S. Holder of an
Original Issue Discount Note is the sum of the daily portions of original issue
discount with respect to such Original Issue Discount Note for each day during
the taxable year (or portion of the taxable year) on which such U.S. Holder held
such Original Issue Discount Note. The "daily portion" of original issue
discount on any Original Issue Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Original Issue Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period) and (ii) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of an
Original Issue Discount Note at the beginning of any accrual period is the sum
of the issue price of the Original Issue Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such Original Issue Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the Original Issue Discount Note)
will be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified de minimis amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation
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(i.e., a cap) or a minimum numerical limitation (i.e., a floor) may, under
certain circumstances, fail to be treated as a qualified floating rate under the
OID Regulations unless such cap or floor is fixed throughout the term of the
Note. An "objective rate" is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. A rate will not qualify as an
objective rate if it is based on information that is within the control of the
issuer (or a related party) or that is unique to the circumstances of the issuer
(or a related party), such as dividends, profits or the value of the issuer's
stock (although a rate does not fail to be an objective rate merely because it
is based on the credit quality of the issuer). A "qualified inverse floating
rate" is any objective rate where such rate is equal to a fixed rate minus a
qualified floating rate, as long as variations in the rate can reasonably be
expected to inversely reflect contemporaneous variations in the qualified
floating rate. The OID Regulations also provide that if a Variable Note provides
for stated interest at a fixed rate for an initial period of one year or less
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Note's issue date is
intended to approximate the fixed rate (e.g., the value of the variable rate on
the issue date does not differ from the value of the fixed rate by more than 25
basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and if
interest on such Note is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually, then all stated interest on
such Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified de
minimis amount. The amount of qualified stated interest and the amount of
original issue discount, if any, that accrues during an accrual period on such
Variable Note is determined under the rules applicable to fixed rate debt
instruments by assuming that the variable rate is a fixed rate equal to (i) in
the case of a qualified floating rate or qualified inverse floating rate, the
value as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (ii) in the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note. The qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
during the accrual period pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
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Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. U.S. Holders should be aware that on June
11, 1996 the Treasury Department issued final regulations (the "CPDI
Regulations") concerning the proper United States Federal income tax treatment
of contingent payment debt instruments. In general, the CPDI Regulations would
cause the timing and character of income, gain or loss reported on a contingent
payment debt instrument to substantially differ from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law.
Specifically, the CPDI Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a U.S.
Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss (depending
upon the circumstances). The CPDI Regulations apply to debt instruments issued
on or after August 13, 1996. The proper United States Federal income tax
treatment of Variable Notes that are treated as contingent payment debt
obligations will be more fully described in the applicable Pricing Supplement.
Furthermore, any other special United States Federal income tax considerations,
not otherwise discussed herein, which are applicable to any particular issue of
Notes will be discussed in the applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Issuer
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-
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Term Note on a straight-line basis unless an election is made to accrue the
original issue discount under a constant yield method (based on daily
compounding).
Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an Original Issue Discount Note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of an Original Issue Discount
Note, any payment that does not constitute qualified stated interest) on, or any
gain realized on the sale, exchange, retirement or other disposition of, a Note
as ordinary income to the extent of the lesser of (i) the amount of such payment
or realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time of
such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on the basis
of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or semiannual compounding basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Premium
If a U.S. Holder purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. Any election to amortize bond premium applies to all taxable
debt instruments then owned and thereafter acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies and
may be revoked only with the consent of the IRS.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a
Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond
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premium taken with respect to such Note. Such gain or loss generally will be
long-term capital gain or loss if the Note were held for more than one year.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Issuer, a controlled foreign corporation
related to the Issuer or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Issuer
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
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PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Issuer to
or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc., NationsBank Capital Markets, Inc. and Smith
Barney Inc. (the "Agents"). The Agents, individually or in a syndicate, may
purchase Notes, as principal, from the Issuer for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the time of
resale as determined by the applicable Agent or, if so specified in the
applicable Pricing Supplement, for resale at a fixed offering price. If agreed
to by the Issuer and an Agent, such Agent may also utilize its reasonable
efforts on an agency basis to solicit offers to purchase the Notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Issuer will pay a commission to an Agent, ranging from
[.125% to .750%] of the principal amount of each Note, depending upon its stated
maturity, sold through such Agent as an agent of the Issuer. Commissions with
respect to Notes with stated maturities in excess of 30 years that are sold
through an Agent as an agent of the Issuer will be negotiated between the Issuer
and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Issuer as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The Issuer reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Issuer or through an Agent). Each Agent will have the right,
in its discretion reasonably exercised, to reject in whole or in part any offer
to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in The City of New York on the date of settlement. See
"Description of Notes -- General" and "-- Same Day Settlement and Payment."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Issuer has agreed
to indemnify the Agents against, and to provide contribution with respect to,
certain liabilities (including liabilities under the Securities Act). The Issuer
has agreed to reimburse the Agents for certain other expenses.
In the ordinary course of its business, the Agents and their affiliates
have engaged and may in the future engage in investment and commercial banking
transactions with the Issuer and certain of its affiliates. See "Plan of
Distribution" in the accompanying Prospectus.
The Issuer may issue and sell other Debt Securities described in the
accompanying Prospectus, and the amount of Notes offered hereby is subject to
reduction as a result of such sales.
S-38
<PAGE> 46
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 17, 1997
PROSPECTUS
$1,000,000,000
HOMESIDE LENDING, INC.
DEBT SECURITIES
---------------
HomeSide Lending, Inc. (the "Issuer" and, together with its consolidated
subsidiaries, "HomeSide") may offer, in one or more series, its debt securities
(the "Debt Securities") in the amounts, at prices and on the terms to be
determined at the time of the offering. The Debt Securities may be issued in one
or more series or issuances and will have an aggregate initial public offering
price of up to $1,000,000,000. Certain specific terms of the Debt Securities in
respect of which this Prospectus is being delivered are set forth in the
accompanying Prospectus Supplement (the "Prospectus Supplement"), including,
where applicable, the specific title, the aggregate principal amount, aggregate
offering price, the denomination, the maturity, the premium, if any, the
interest rate (which may be fixed, floating or adjustable), if any, the time and
method of calculating payment of interest, if any, the place or places where
principal of, premium, if any, and interest, if any, on such Debt Securities
will be payable, any terms of redemption at the option of the Issuer, or
repayment at the option of the holder, any sinking fund provisions, any other
special terms, and the public offering price and other terms of the offering and
sale thereof. If so specified in the applicable Prospectus Supplement, Debt
Securities of a series may be issued in whole or in part in the form of one or
more temporary or permanent global securities.
The applicable Prospectus Supplement also will contain information, where
applicable, about U.S. federal income tax considerations relating to, and any
listing on a securities exchange of, the Debt Securities covered by such
Prospectus Supplement.
Unless otherwise specified in a Prospectus Supplement, the Debt Securities,
when issued, will be unsecured and unsubordinated obligations of the Issuer and
will rank pari passu in right of payment with all other unsecured and
unsubordinated indebtedness of the Issuer.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Debt Securities may be sold through underwriting syndicates represented
by managing underwriters, by underwriters without a syndicate, through agents
designated from time to time, or directly to institutional purchasers. Any such
managing underwriters, underwriters or agents may include Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
NationsBank Capital Markets, Inc. and Smith Barney Inc. The names of any
underwriters or agents of the Issuer involved in the sale of the Debt Securities
in respect of which this Prospectus is being delivered and any applicable
commissions or discounts are set forth in the Prospectus Supplement. See "Plan
of Distribution." This Prospectus may not be used to consummate sales of Debt
Securities unless accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is , 1997
<PAGE> 47
------------------------
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
ADDITIONAL INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act of 1933 (the "Act" or the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the securities being offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the Commission
and to which reference is hereby made. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. For
further information with respect to the Issuer, reference is made to such
Registration Statement. The Registration Statement may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth St., N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be
obtained from the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
The Issuer's audited annual financial statements, unaudited quarterly
financial statements and certain other reports will be furnished to the Trustee
under the Indenture. Following the effectiveness of the Registration Statement
under the Securities Act, the Issuer will be subject to the reporting
requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Notwithstanding that the Issuer may not be required to
remain subject to the reporting requirements of Section 13 or Section 15(d) of
the Exchange Act, so long as any of the Debt Securities are outstanding, the
Issuer will continue to file with the Commission and provide to the Trustee and,
upon request, to the holders of the Debt Securities, annual reports containing
financial statements audited by its independent certified public accountants and
quarterly reports containing unaudited financial statements for each of the
first three quarters of each fiscal year.
------------------------
2
<PAGE> 48
HOMESIDE
The Issuer, formerly the mortgage banking subsidiary of The First National
Bank of Boston ("Bank of Boston"), was acquired by HomeSide, Inc. (the "Parent")
on March 15, 1996. The Issuer prior to its acquisition is sometimes referred to
herein as "HLI". HomeSide Holdings, Inc. ("HHI"), formerly the mortgage banking
subsidiary of Barnett Banks, Inc. ("Barnett") was acquired by the Parent on May
31, 1996. Upon the acquisition of HHI by the Parent, all of the assets and
liabilities of HHI, with the exception of certain GNMA servicing rights, were
transferred to the Issuer. HHI is a wholly-owned subsidiary of the Parent, and
the Issuer is a wholly-owned subsidiary of HHI. The Issuer was incorporated in
Florida on September 18, 1986. HomeSide's executive offices are located at 7301
Baymeadows Way, Jacksonville, Florida 32256, telephone number (904) 281-3000.
HomeSide is one of the largest full-service residential mortgage banking
companies in the United States. HomeSide's strategy emphasizes variable cost
mortgage origination and low cost servicing. On a combined basis HomeSide's
origination volume and servicing portfolio would have been $14.7 billion and
$73.9 billion, respectively, as of and for the year ended December 31, 1995,
ranking HomeSide as the 5th largest originator and 7th largest servicer in the
United States for 1995 based on data published by National Mortgage News. As of
and for the nine months ended November 30, 1996, HomeSide's loan originations
and acquisitions were $18.9 billion and the servicing portfolio was $87.7
billion.
The table below sets forth the historical production and servicing
portfolio volumes for HLI and HHI.
HLI AND HHI COMBINED PRODUCTION AND SERVICING SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED AND AT DECEMBER 31,
-----------------------------------------------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
HLI................................ $ 4,437 $ 8,660 $11,371 $ 8,935 $ 8,885 $4,187(b)
HHI(a)............................. 1,945 3,507 3,360 3,410 5,767 2,538(c)
------- ------- ------- ------- ------- ------
Combined production.............. $ 6,382 $12,167 $14,731 $12,345 $14,652 $6,725
======= ======= ======= ======= ======= ======
SERVICING PORTFOLIO
HLI................................ $20,601 $23,706 $27,999 $37,971 $41,555
HHI................................ 10,034 11,524 13,085 18,411 33,411
------- ------- ------- ------- -------
Combined servicing portfolio..... $30,635 $35,230 $41,084 $56,382 $74,966
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) If Loan America Financial Corporation ("LAFC" or "Loan America") and
BancPLUS Financial Corporation loan production had been included for years
prior to their acquisitions, then production would have been $4,742 million,
$8,480 million, $9,589 million, $6,401 million and $5,767 million for 1991,
1992, 1993, 1994 and 1995, respectively.
(b) Period information is for January 1, 1996 through March 15, 1996.
(c) Period information is for January 1, 1996 through May 31, 1996.
3
<PAGE> 49
The table below sets forth the servicing statistics for HomeSide:
HOMESIDE SERVICING STATISTICS
<TABLE>
<CAPTION>
PRO FORMA
HOMESIDE FOR THE
HLI AND HHI
ACQUISITIONS AT ACTUAL AT
DECEMBER 31, 1995 NOVEMBER 30, 1996
----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
FHA/VA............................................ $24,823 $31,431
Conventional...................................... 48,429 51,389
------- -------
Total serviced unpaid principal balance
("UPB")...................................... 73,252(a) 82,820(b)
ARM (adjustable rate mortgages)................... 23% 26%
Fixed............................................. 77% 74%
Weighted average coupon........................... 8.01% 7.91%
Weighted average servicing fee (% of UPB)......... 0.351%(c) 0.359%
Weighted average maturity (months)................ 278 279
</TABLE>
- ---------------
(a) Excludes loans purchased not yet on servicing system of approximately $0.6
billion.
(b) Excludes loans purchased not yet on servicing system of $4.9 billion.
(c) HHI's weighted average servicing fees are adjusted to reflect market rates
under contractual arrangements between HomeSide and Barnett.
4
<PAGE> 50
USE OF PROCEEDS
Except as may be otherwise stated in the applicable Prospectus Supplement,
the Issuer intends to use the net proceeds from the sale of the securities
offered hereby to reduce amounts outstanding under the Bank Credit Agreement and
for working capital and general corporate purposes, including the purchase of
servicing rights. The loans under the Bank Credit Agreement mature on February
14, 2000 and as of November 30, 1996 carry a weighted average interest on
amounts borrowed of 5.98% per annum. See "Description of Certain Indebtedness --
Bank Credit Agreement."
5
<PAGE> 51
SELECTED CONSOLIDATED FINANCIAL INFORMATION
SELECTED UNAUDITED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION OF HOMESIDE
The selected unaudited consolidated financial and operating information of
HomeSide set forth below is for the period March 16, 1996 to May 31, 1996, each
of the three months ended August 31, 1996 and November 30, 1996 and the period
March 16, 1996 to November 30, 1996 and should be read in conjunction with, and
is qualified in its entirety by reference to, the Consolidated Financial
Statements and the notes thereto and in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
HomeSide included elsewhere in this Prospectus. See also "Unaudited Pro Forma
Consolidated Financial Information." The consolidated operating results for
these periods and the consolidated balance sheet data at November 30, 1996 are
unaudited but, in the opinion of management, contain all material adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for the periods ended November 30, 1996
are not necessarily indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE FOR THE THREE
MARCH 16, 1996 MONTHS ENDED MONTHS ENDED FOR THE PERIOD
TO MAY 31, AUGUST 31, NOVEMBER 30, MARCH 16, 1996 TO
1996 1996 1996 NOVEMBER 30, 1996
-------------- -------------- ---------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Mortgage servicing fees............. $ 41,485 $ 82,179 $ 90,492 $ 214,156
Amortization of mortgage servicing
rights............................ (16,442) (39,753) (48,120) (104,315)
----------- ----------- ----------- -----------
Net servicing revenue............. 25,043 42,426 42,372 109,841
Interest income..................... 12,719 22,270 25,241 60,230
Interest expense.................... (12,592) (17,684) (16,140) (46,416)
----------- ----------- ----------- -----------
Net interest revenue.............. 127 4,586 9,101 13,814
Net mortgage origination revenue.... 10,810 16,273 16,521 43,604
Other income........................ 107 355 79 541
----------- ----------- ----------- -----------
Total revenues............ 36,087 63,640 68,073 167,800
Expenses:
Salaries and employee benefits...... 11,480 21,177 20,650 53,307
Occupancy and equipment............. 1,846 3,084 3,337 8,267
Servicing losses on investor-owned
loans............................. 3,938 4,058 4,957 12,953
Other expenses...................... 5,345 12,196 11,391 28,932
----------- ----------- ----------- -----------
Total expenses............ 22,609 40,515 40,335 103,459
Income before income taxes.......... 13,478 23,125 27,738 64,341
Income tax expense.................. 5,526 9,481 11,373 26,380
----------- ----------- ----------- -----------
Net income(e)....................... $ 7,952 $ 13,644 $ 16,365 $ 37,961
=========== =========== =========== ===========
SELECTED OPERATING DATA:
Volume of loans originated and
acquired.......................... $ 3,780,236 $ 9,565,199(b) $ 5,540,875 $18,886,310(b)
Loan servicing portfolio (at period
end).............................. 77,351,849 84,818,725(b) 87,712,746 87,712,746
Loan servicing portfolio (average
outstanding during the period).... 43,670,497(a) 81,223,664 86,535,928 69,643,494(c)
Weighted average interest rate for
the servicing portfolio (at period
end).............................. 7.86% 7.92% 7.91% 7.91%
Weighted average servicing fee for
the servicing portfolio (at period
end).............................. 0.367% 0.363% 0.359% 0.359%
Ratio of earnings to fixed
charges........................... 2.05x(d) 2.28x(d) 2.67x(d) 2.35x(d)
(footnotes on following page)
</TABLE>
6
<PAGE> 52
<TABLE>
<CAPTION>
AT
NOVEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(F)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Mortgage loans held for sale.................................................. $1,101,229 $1,101,229
Mortgage servicing rights..................................................... 1,321,639 1,321,639
Total assets.................................................................. 2,833,601 2,833,601
Warehouse credit facility..................................................... 1,074,583 1,074,583
Long-term debt(e)............................................................. 957,508 918,710
Total liabilities............................................................. 2,276,265 2,237,467
Total stockholder's equity.................................................... 557,336 596,134
</TABLE>
- ---------------
(a) Period information is for March 1, 1996 through May 31, 1996.
(b) Includes bulk purchases of $4.1 billion.
(c) Period information is for March 1, 1996 through November 30, 1996.
(d) The ratio of earnings to fixed charges does not include the effect of $200
million of 11.25% Notes due 2003 (the "Parent Notes") which were issued by
the Parent on May 14, 1996. The Parent Notes are not reflected in the
consolidated financial statements of HomeSide, however, debt service on the
Parent Notes is highly dependent on the ability of HomeSide to generate
funds sufficient to meet such obligations.
(e) On May 14, 1996 the Parent issued $200 million of Parent Notes. All of the
outstanding common stock of HomeSide and HHI is pledged as security on the
Parent Notes. The only significant asset of the Parent is its investment in
HomeSide and HHI common stock. The Parent is dependent on cash payments from
HomeSide to service its debt obligations. The Parent Notes, and related
interest expense, are not reflected in the financial statements of HomeSide.
(f) Adjusted to give effect to the sale of common stock by the Parent and the
application of a portion of the net proceeds contributed to HomeSide as if
such transaction had occurred on November 30, 1996. For additional
information see "Index to Financial Statements -- Unaudited Pro Forma
Consolidated Financial Information."
7
<PAGE> 53
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION OF HLI
The selected consolidated financial information of HLI (formerly BancBoston
Mortgage Corporation) set forth below has been derived from the financial
statements of HLI and the related notes thereto for the periods prior to its
acquisition by the Parent. The selected consolidated financial information
should be read in conjunction with, and is qualified in its entirety by
reference to, HLI's Consolidated Financial Statements and the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- HLI" included elsewhere in this Prospectus. See also "Unaudited
Pro Forma Consolidated Financial Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, FOR THE THREE FOR THE PERIOD
---------------------------------------------------------------- MONTHS ENDED JANUARY 1, 1996
1991 1992 1993 1994 1995 MARCH 31, 1995 TO MARCH 15, 1996
----------- ----------- ----------- ----------- ----------- -------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Mortgage servicing fees.... $ 92,362 $ 105,890 $ 111,822 $ 140,491 $ 173,038 $ 43,657 $ 38,977
Gain (loss) on risk
management contracts..... -- -- 6,688 (6,702) 108,702 3,612 (128,795)
Amortization of mortgage
servicing rights......... (37,213) (73,908) (112,492) (66,801) (108,013) (23,103) (7,245)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net servicing revenue.... 55,149 31,982 6,018 66,988 173,727 24,166 (97,063)
Interest income............ 41,252 46,865 50,156 31,585 24,324 4,122 8,423
Interest expense........... (27,686) (38,855) (44,199) (33,952) (27,128) (6,079) (10,089)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net interest revenue..... 13,566 8,010 5,957 (2,367) (2,804) (1,957) (1,666)
Net mortgage origination
revenue (expense)........ 6,508 1,123 6,173 4,983 3,417 (1,083) 7,638
Gain on sales of servicing
rights................... 12,034 14,769 651 10,862 10,230 4,285 --
Other income............... 52 17 50 147 511 13 253
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total revenues..... 87,309 55,901 18,849 80,613 185,081 25,424 (90,838)
Expenses:
Salaries and employee
benefits............... 27,328 30,053 33,096 40,370 45,381 11,696 10,287
Occupancy and
equipment.............. 7,809 7,788 7,966 9,012 10,009 2,358 2,041
Servicing losses on
investor-owned loans... 2,880 8,138 2,770 7,177 9,981 733 5,560
Real estate acquired..... 1,195 1,124 1,600 253 1,054 218 291
Other expenses........... 17,552 20,461 22,058 19,326 21,896 4,713 7,377
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total expenses..... 56,764 67,564 67,490 76,138 88,321 19,718 25,556
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) before income
taxes and cumulative
effects of changes in
accounting principles.... 30,545 (11,663) (48,641) 4,475 96,760 5,706 (116,394)
Income tax expense
(benefit) before
cumulative effects of
changes in accounting
principles............... 12,168 (3,829) (17,284) 2,525 37,934 2,277 (42,533)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) before
cumulative effects of
changes in accounting
principles............... 18,377 (7,834) (31,357) 1,950 58,826 3,429 (73,861)
Change in purchased
mortgage servicing
rights ("PMSR")
valuation method, net
of tax................. -- -- (59,921 (a) -- -- -- --
Change in accounting for
income taxes........... -- -- 6,093(b) -- -- -- --
Change in accounting for
mortgage servicing fee
income, net of tax..... -- -- -- 3,455(c) -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net income (loss).......... $ 18,377 $ (7,834) $ (85,185) $ 5,405 $ 58,826 $ 3,429 $ (73,861)
========== ========== ========== ========== ========== =========== ==========
SELECTED OPERATING DATA:
Volume of loans originated
and acquired............. $ 5,196,996 $ 9,705,875 $13,682,761 $14,473,000 $ 9,567,521 $ 1,181,642 $ 4,187,603(d)
Loan servicing portfolio
(at period end).......... 20,600,569 23,705,642 27,999,100 37,971,200 41,555,354 37,800,120 44,158,163(d)
Loan servicing portfolio
(average)................ 19,663,100 22,153,100 25,852,400 33,178,600 39,283,700 38,099,730 43,158,072(d)
Weighted average interest
rate (at period end)..... 9.65% 9.05% 8.07% 7.91% 7.97% 7.90% 7.92%(d)
Weighted average servicing
fee (average for
period).................. 0.400% 0.390% 0.372% 0.389% 0.383% 0.384% 0.380%(d)
Ratio of earnings to fixed
charges.................. 2.06x --(e) --(e) 1.13x 4.40x 1.88x --(e)
SELECTED BALANCE SHEET DATA (AT PERIOD END):
Mortgage loans held for
sale..................... $ 507,776 $ 495,455 $ 607,506 $ 271,215 $ 388,436 $ 70,978 $ 641,465
Mortgage servicing
rights................... 296,393 337,307 281,727 431,148 551,338 414,974 542,862
Total assets............... 1,034,269 1,073,686 1,193,583 1,006,887 1,254,303 858,001 1,512,902
Note payable to parent..... 748,827 799,992 1,019,011 779,021 966,000 648,499 1,256,000
Long-term debt............. 14,483 14,339 14,180 14,007 13,816 13,961 13,790
Total liabilities.......... 818,890 866,141 1,071,223 879,122 1,067,712 726,807 1,400,172
Total stockholder's
equity................... 215,379 207,545 122,360 127,765 186,591 131,194 112,730
</TABLE>
- ---------------
(a) On January 1, 1993, HLI changed its method of accounting for PMSR to conform
to the accounting rules adopted in 1993 by the banking regulators. Under
these new rules, the carrying value of PMSR is recorded at the lesser of
amortized cost or the discounted cash flows from servicing the underlying
mortgages. Previously, this valuation was performed on an undiscounted
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Consolidated Financial
Statements on F-40.
(b) On January 1, 1993, HLI adopted SFAS No. 109, "Accounting for Income Taxes,"
which principally affects accounting for deferred taxes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 2 and 10 of Notes to Consolidated Financial Statements on F-40 and
F-47, respectively.
(c) On January 1, 1994, HLI changed its method of recognizing servicing fee
income to the accrual method. Previously, these fees were recorded as income
when the payments were received. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 2 of Notes to
Consolidated Financial Statements on F-40.
(d) Period information is for the period January 1, 1996 to March 31, 1996 and
period end information is at March 31, 1996.
(e) Fixed charges exceeded income before income taxes, cumulative effect of
changes in accounting principles and fixed charges by $11.7 million and
$48.6 million in 1992 and 1993, respectively, and $116.4 million for the
period January 1, 1996 to March 15, 1996.
8
<PAGE> 54
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION OF HHI
The selected consolidated financial information of HHI (formerly Barnett
Mortgage Company) set forth below has been derived from the financial statements
of HHI and the related notes thereto for the periods prior to its acquisition by
the Parent. The selected consolidated financial information should be read in
conjunction with, and is qualified in its entirety by reference to, HHI's
Consolidated Financial Statements and the Notes thereto and in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- HHI" included elsewhere in this Prospectus. See also "Unaudited
Pro Forma Consolidated Financial Information."
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE SIX FOR THE PERIOD
YEARS ENDED DECEMBER 31, FOR THE THREE APRIL 1, 1996 MONTHS ENDED JANUARY 1,
-------------------------------------------------- MONTHS ENDED TO MAY 30, JUNE 30, 1996 TO MAY
1991 1992 1993 1994(A) 1995(B) JUNE 30, 1995 1996 1995 30, 1996
------- ------- -------- -------- -------- ------------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS
DATA:
Mortgage
Origination
Revenue:
Mortgage
origination
fees......... $ -- $ -- $ 358 $ 3,276 $ 17,104 $ 3,469 $ 1,646 $ 6,005 $ 7,288
Gain (loss) on
sales of
loans, net... 3,184 8,187 5,688 692 (13,920) 995 (3,383) 1,514 482
------- ------- -------- -------- -------- -------- -------- -------- --------
Total
mortgage
origination
revenue... 3,184 8,187 6,046 3,968 3,184 4,464 (1,737) 7,519 7,770
Interest Income
(expense):
Interest
income....... 765 657 855 3,460 27,264 4,420 5,638 7,003 14,216
Interest
expense,
substantially
all to
affiliates... (568) (531) (1,415) (4,911) (20,427) (6,766) (3,480) (9,685) (9,574)
------- ------- -------- -------- -------- -------- -------- -------- --------
Net
interest
income
(expense)... 197 126 (560) (1,451) 6,837 (2,346) 2,158 (2,682) 4,642
Mortgage
Servicing
Revenue:
Mortgage
servicing
income....... 10,143 13,427 20,560 27,130 83,502 22,439 15,709 35,723 38,833
Mortgage
servicing
income from
affiliates... 6,986 16,143 18,326 20,017 25,057 6,407 5,464 12,503 13,626
Amortization of
capitalized
mortgage
servicing
rights....... (2,453) (6,013) (11,547) (17,783) (48,282) (12,124) (8,456) (20,475) (25,467)
Gain on sales
of
servicing.... -- -- -- -- 9,096 -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- --------
Net mortgage
servicing
revenue.... 14,676 23,557 27,339 29,364 69,373 16,722 12,717 27,751 26,992
Other Income..... 2,860 7,750 6,296 4,492 2,592 6,203 1,678 7,054 1,740
------- ------- -------- -------- -------- -------- -------- -------- --------
Total
revenues... 20,917 39,620 39,121 36,373 81,986 25,043 14,816 39,642 41,144
Expenses:
Salaries and
benefits..... 7,778 13,698 13,914 17,474 53,070 14,301 10,402 23,433 25,173
General and
administrative... 10,349 11,401 12,432 14,924 41,849 12,119 6,816 20,403 20,748
Affiliate
profit
sharing...... 1,699 12,471 10,774 3,534 6,242
Occupancy and
equipment.... 1,091 1,167 1,810 2,702 5,960 2,424 1,569 3,941 3,720
Amortization of
goodwill..... -- -- -- 259 4,840 1,673 928 2,226 2,324
------- ------- -------- -------- -------- -------- -------- -------- --------
Total
expenses... 20,917 38,737 38,930 38,893 111,961 30,517 19,715 50,003 51,965
------- ------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before income
taxes.......... 0 883 191 (2,520) (29,975) (5,474) (4,899) (10,361) (10,821)
Income tax
provision
(benefit)...... 34 359 87 (462) (9,589) (2,118) (914) (2,877) (2,478)
------- ------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before changes
in accounting
principles..... (34) 524 104 (2,058) (20,386) -- -- -- --
Cumulative effect
of changes in
accounting
principles..... -- (507)(c) -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ (34) $ 17 $ 104 $ (2,058) $(20,386) $ (3,356) $ (3,985) $ (7,484) $ (8,343)
======= ======= ======== ======== ======== ======== ======== ======== ========
SELECTED
OPERATING DATA
(DOLLARS IN
MILLIONS):
Volume of loans
originated and
acquired....... $ 1,945 $ 3,507 $ 3,360 $ 3,410 $ 5,767 $ 1,330 $ 982 $ 2,886 $ 2,538
Loan servicing
portfolio (at
period end).... 10,034 11,524 13,085 18,411 33,411 33,070 (e) 33,070 (e)
Loan servicing
portfolio
(average)...... 9,639 10,779 12,305 15,748 30,669 32,839 33,057 28,153 33,182
Weighted average
interest rate
(at period
end)(d)........ -- -- 7.34% 7.44% 8.05% 7.98% (e) 7.98% (e)
Weighted average
servicing fee
(average for
period)(d)..... -- -- 0.259% 0.261% 0.299% 0.301% 0.346% 0.299% 0.337%
Ratio of earnings
to fixed
charges........ 1.00x 2.10x 1.10x --(f) --(f) --(f) --(f) --(f) --(f)
SELECTED BALANCE
SHEET DATA (AT
PERIOD END):
Mortgage loans
held for
sale........... $ -- $ -- $ -- $183,914 $465,880 $ 331,184 (g) $331,184 (g)
Mortgage
servicing
rights......... 12,959 25,458 48,941 92,461 250,788 259,796 (g) 259,796 (g)
Total assets..... 42,082 61,166 96,186 359,472 994,630 857,046 (g) 857,046 (g)
Notes payable.... 16,107 20,325 63,329 248,214 653,056 503,000 (g) 503,000 (g)
Total
liabilities.... 22,676 38,541 69,930 274,570 762,802 612,311 (g) 612,311 (g)
Total
stockholder's
equity......... 19,406 22,625 26,257 84,902 231,828 244,735 (g) 244,735 (g)
(footnotes on following page)
</TABLE>
9
<PAGE> 55
- ---------------
(a) Includes Loan America since its acquisition in October 1994.
(b) Includes BancPLUS Financial Corporation since its acquisition in February
1995.
(c) In 1992, HHI adopted two new accounting standards. Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
changed HHI's accounting for income taxes to the asset/liability method from
the deferred method previously required by Accounting Principles Board
Opinion No. 11. HHI also adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires that the
projected future cost of providing postretirement health care and other
benefits be recognized during the periods employees provide services to earn
those benefits. Prior to adopting SFAS No. 106, these costs were expensed as
incurred. HHI adopted both of these changes on a prospective basis effective
January 1, 1992. As permitted under SFAS No. 106, HHI chose to immediately
recognize the transition obligation for postretirement benefits other than
pensions in net income for 1992 rather than on a delayed basis over the
remaining average service period of active plan members.
(d) Information not available for 1991 and 1992.
(e) HHI was acquired by HomeSide on May 31, 1996 and, accordingly, its servicing
portfolio is included in HomeSide's servicing portfolio as of May 31, 1996.
(f) Fixed charges exceeded income before income taxes, cumulative effect of
changes in accounting principles and fixed charges by $2.5 million and $30.0
million in 1994 and 1995, respectively, $4.9 million for the period April 1,
1996 to May 30, 1996, $5.5 million for the three months ended June 30, 1995,
$10.8 million for the period January 1, 1996 to May 30, 1996 and $10.4
million for the six months ended June 30, 1995.
(g) HHI was acquired by the Parent on May 31, 1996 and, accordingly, all of its
assets and liabilities are included in the consolidated balance sheet of the
Parent as of May 31, 1996.
10
<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- HOMESIDE
MARCH 16, 1996 TO NOVEMBER 30, 1996
AND THE THREE MONTHS ENDED NOVEMBER 30, 1996
GENERAL
The Issuer is the primary operating subsidiary of HomeSide, Inc. (the
"Parent"). The Parent was formed on December 11, 1995 by an investor group,
consisting of Thomas H. Lee Company and its affiliates and Madison Dearborn
Partners (collectively, the "Investors"), and signed a definitive stock purchase
agreement with The First National Bank of Boston ("Bank of Boston" or "BKB") for
the purpose of acquiring certain assets and liabilities of the mortgage banking
business ("HLI") owned by Bank of Boston. The transaction closed on March 15,
1996 and HomeSide began operations on March 16, 1996.
On May 31, 1996, Barnett Banks, Inc. ("Barnett") sold certain of its
mortgage banking operations ("HHI"), primarily its servicing portfolio and
proprietary mortgage banking software systems, to the Parent. Barnett received
cash and an ownership interest in the Parent. Barnett Mortgage Company was
subsequently renamed HomeSide Holdings, Inc. For more information on these
acquisitions see Note 4 of Notes to Consolidated Financial Statements of the
Issuer on F-9. From May 31, 1996 until the January 1997 public offering of
Common Stock of the Parent each of the Investors as a group, Bank of Boston and
Barnett owned approximately one-third of the Parent. Following the public
offering, the Investors as a group, Bank of Boston and Barnett own in the
aggregate approximately 79% of the outstanding Common Stock of the Parent.
The Issuer, in conjunction with the Parent, has adopted a February 28
fiscal year end. The consolidated financial statements of HomeSide have been
prepared for the period March 16, 1996 to November 30, 1996 to coincide with the
Parent's acquisition of HLI and the end of HomeSide's third quarter of fiscal
1997. The purchase method of accounting was used for the HLI and HHI
acquisitions and, accordingly, assets acquired and liabilities assumed were
recorded at their estimated fair values at the date of acquisition.
Comparative financial statements for the same period in the prior year have
not been presented due to a lack of comparability between HomeSide and the
historical financial statements of HLI and HHI. As noted above, the assets
acquired and liabilities assumed by HomeSide in each of the acquisitions were
recorded at their estimated fair values as of the date of acquisition. As a
result, HomeSide's operating results are not directly comparable to HLI and BMC
historical operating results due, in part, to different balance sheet valuations
(estimated fair value as compared to historical cost). In addition, certain
production channels were retained by BKB and all of BMC's production channels
were retained by Barnett. The results of operations for the three months ended
November 30, 1996 are, therefore, most directly comparable to the results of
operations for the three months ended August 31, 1996. Results of operations
prior to May 31, 1996 do not include the results of operations of HHI, which was
acquired by the Parent on May 31, 1996.
Mortgage banking is a specialized branch of the financial services industry
which primarily involves (i) originating and purchasing mortgage loans
("origination" and/or "production"); (ii) selling the originated mortgages to
third parties either as mortgage-backed securities or as whole loans ("secondary
marketing"); (iii) servicing of mortgage loans on behalf of the ultimate
purchasers, which includes the collection and disbursement of payments of
mortgage principal and interest, the collection of payments of taxes and
insurance premiums to pay property taxes and insurance premiums, and management
of certain loan default activities (collectively, "servicing"); and (iv) the
purchase and sale of the rights to service mortgage loans.
Mortgage bankers originate loans generally through two channels: wholesale
and direct. Wholesale origination involves the origination of mortgage loans
from sources other than homeowners, including mortgage brokers and other
mortgage lenders. Direct origination typically includes (i) networks of retail
loan offices with sales staff that solicit business from homeowners, realtors,
builders, and other real estate professionals, (ii) centers that use
telemarketing, direct mail, and advertising to market loans directly to home
buyers or homeowners, (iii) affinity and co-branding partnerships, and (iv)
corporate relocation programs. Once originated or purchased, mortgage bankers
hold the loans temporarily ("warehousing") until they are sold, typically
earning an interest spread equal to the difference between the loan's interest
rate and the cost of financing the loan. Each loan is sold either excluding or
including the associated right to service the loan ("servicing retained" or
"servicing released," respectively).
11
<PAGE> 57
Mortgage bankers rely mainly on short-term borrowings, such as warehouse
lines, to finance the origination of mortgages that are then typically sold.
Mortgage bankers also borrow on a longer term basis to finance their servicing
assets and working capital requirements. Revenues consist primarily of those
related to servicing and, to a lesser extent, fees and interest spreads from
originations. The major expenses of a mortgage banker include costs of
financing, operating costs related to origination and servicing and the
amortization of mortgage servicing rights.
Mortgage bankers typically seek to retain the rights to service the loans
they originate and to acquire rights to service additional loans in order to
generate recurring fee income. The purchase and sale of servicing rights can
occur on a loan by loan basis ("flow") or on a portfolio (group of loans) basis
("bulk" or "mini-bulk"). Prices for servicing rights are typically stated as a
multiple of the servicing fee or as a percentage of the outstanding UPB for a
group of mortgage loans. Values of servicing portfolios are determined on the
basis of the present value of the servicing fee income stream (net of servicing
costs) expected to be received over the estimated life of the loans. The assets
of a mortgage banking company consist primarily of loans in warehouse and the
value of the servicing rights purchased ("purchased mortgage servicing rights"
or "PMSR") or originated ("originated mortgage servicing rights" or "OMSR").
The following operating statistics for HomeSide are presented to aid in
understanding the results of operations and financial condition of HomeSide for
the period March 16, 1996 to May 31, 1996, and each of the three months ended
August 31, 1996 and November 30, 1996 and the period March 16, 1996 to November
30, 1996. References to the first quarter of fiscal 1997 relate to the period
March 16, 1996 to May 31, 1996. References to the second quarter of fiscal 1997
relate to the three months ended August 31, 1996 and references to the third
quarter of fiscal 1997 relate to the three months ended November 30, 1996.
Loan Production Activities
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE FOR THE THREE FOR THE PERIOD
MARCH 16, 1996 MONTHS ENDED MONTHS ENDED MARCH 16, 1996 TO
TO MAY 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
--------------- --------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Correspondent (includes volumes
purchased from BKB and
Barnett)....................... $1,893 $2,950 $3,249 $8,092
Co-issue (a)..................... 1,419 2,208 1,985 5,612
Broker........................... 220 155 168 543
------ ------ ------ -------
Total wholesale.................. 3,532 5,313 5,402 14,247
Direct........................... 248 179 139 566
------ ------ ------ -------
Total purchases.................. 3,780 5,492 5,541 14,813
Bulk acquisitions................ -- 4,073 -- 4,073
------ ------ ------ -------
Total purchases and
acquisitions................... $3,780 $9,565 $5,541 $18,886
====== ====== ====== =======
</TABLE>
- ---------------
(a) Co-issue production represents the purchase of servicing rights from a
correspondent under contracts to deliver specified volumes on a monthly or
quarterly basis. The substance of this transaction is the purchase of a
loan and mortgage servicing right with the instantaneous sale of the loan
with the servicing right retained. Amounts represent the unpaid principal
balance of mortgage debt to which the acquired servicing rights relate.
During each of the second and third quarters of fiscal 1997, HomeSide's
loan production totaled approximately $5.5 billion. Total loan production
increased from $3.8 billion in the period March 16, 1996 to May 31, 1996 to $5.5
billion for the three months ended August 31, 1996. This increase was due to the
additional production resulting from the acquisition of HHI on May 31, 1996 and
growth in HomeSide's existing wholesale channel. In addition, HomeSide made bulk
servicing acquisitions of $4.1 billion during the second quarter of fiscal 1997.
12
<PAGE> 58
Servicing Portfolio
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE FOR THE THREE FOR THE PERIOD
MARCH 1, 1996 TO MONTHS ENDED MONTHS ENDED MARCH 1, 1996 TO
MAY 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
---------------- --------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at beginning of period....... $41,844 $77,351 $84,819 $41,844
Acquisition of HHI................... 33,082 -- -- 33,082
Other additions...................... 4,102 9,842 5,244 19,188
------- ------- ------- -------
Total additions................. 37,184 9,842 5,244 52,270
------- ------- ------- -------
Scheduled amortization............... 212 470 494 1,176
Prepayments.......................... 1,321 1,702 1,529 4,552
Foreclosures......................... 130 137 106 373
Sale of servicing.................... 14 65 221 300
------- ------- ------- -------
Total reductions................ 1,677 2,374 2,350 6,401
------- ------- ------- -------
Balance at end of period............. $77,351 $84,819 $87,713 $87,713
======= ======= ======= =======
</TABLE>
At November 30, 1996, HomeSide's servicing portfolio stood at $87.7 billion
compared to $84.8 billion at August 31, 1996, $77.4 billion at May 31, 1996 and
$41.8 billion at March 1, 1996. The number of loans being serviced at November
30, 1996 was 1,068,000, compared to 1,041,000 as of August 31, 1996, 966,000 as
of May 31, 1996 and 492,000 as of March 1, 1996. HomeSide's strategy is to build
its mortgage servicing portfolio and benefit from the economies of scale
inherent in the business.
RESULTS OF OPERATIONS
Summary
HomeSide reported net income of $16.4 million during the third quarter of
fiscal 1997 compared to net income of $13.6 million during the second quarter of
fiscal 1997 and $8.0 million during the first quarter of fiscal 1997. Net income
for the period March 16, 1996 to November 30, 1996 was $38.0 million. Total
revenue for the third quarter of fiscal 1997 was primarily comprised of net
servicing revenue of $42.4 million, net interest revenue of $9.1 million, and
net mortgage origination revenue of $16.5 million. These revenues were partially
offset by operating expenses of $40.3 million and income taxes of $11.4 million.
The primary reason for the growth in revenues was increased net interest revenue
during the third quarter of fiscal 1997 as compared to the second quarter of
fiscal 1997. Interest income and expense during the second quarter of fiscal
1997 were $22.3 million and $17.7 million, respectively. The increase in
interest income during the third quarter of fiscal 1997 was the result of an
increase in the average balance of loans held for sale from $1.3 billion in the
second quarter of fiscal 1997 to $1.4 billion during the third quarter of fiscal
1997. Interest expense decreased from $17.7 million in the second quarter of
fiscal 1997 to $16.1 million during the third quarter of fiscal 1997. Higher
average balances of mortgage loans held for sale during the third fiscal quarter
compared to the second fiscal quarter contributed to the $3.0 million increase
in interest income. Lower short-term interest rates and the improved pricing on
borrowings under the Bank Credit Agreement lowered the interest expense for
third quarter of fiscal 1997 compared to the second fiscal quarter.
HomeSide reported net income of $13.6 million during the second quarter of
fiscal 1997 compared to net income of $8.0 million during the first quarter of
fiscal 1997. Total revenue for the second quarter was primarily comprised of net
servicing revenue of $42.4 million, net interest revenue of $4.6 million and net
mortgage origination revenue of $16.3 million. These revenues were partially
offset by operating expenses of $40.5 million and income tax expense of $9.5
million. The primary reason for the increase in revenues and expenses during the
second quarter as compared to the first quarter was the acquisition of HHI on
May 31, 1996. Results of operations for HHI are included from the date of
acquisition and, therefore, are not included in HomeSide's first quarter of
fiscal 1997 results.
Net Servicing Revenue
During the third quarter of fiscal 1997, HomeSide had net servicing revenue
of $42.4 million, compared to net servicing revenue of $42.4 million during the
second quarter of fiscal 1997. Net servicing revenue during the third quarter of
fiscal 1997 was comprised of mortgage servicing fees of $90.5 million, offset by
mortgage servicing rights amortization of $48.1 million. Mortgage servicing fees
generally range from 0.25% to 0.50% of
13
<PAGE> 59
the declining principal balances of the loans per annum. HomeSide's weighted
average servicing fee during the third quarter of fiscal 1997 was 0.368%
compared to 0.367% during the second quarter of fiscal 1997. Amortization of
mortgage servicing rights is recorded over the estimated servicing period in
proportion to estimated servicing revenue and increased from $39.8 million in
the second quarter of fiscal 1997 to $48.1 million in the third quarter of
fiscal 1997 as a result of a higher average servicing portfolio balance and
higher projected mortgage loan prepayment speeds.
During the second quarter of fiscal 1997, HomeSide had net servicing
revenue of $42.4 million, compared to net servicing revenue of $25.0 million
during the first quarter of fiscal 1997. Net servicing revenue during the second
quarter of fiscal 1997 was comprised of mortgage servicing fees of $82.2
million, offset by mortgage servicing rights amortization of $39.8 million.
HomeSide's weighted average servicing fee during the second quarter of fiscal
1997 was 0.367% compared to 0.389% during the first quarter of fiscal 1997. The
decrease in the weighted average servicing fee was due to the servicing rights
acquired from HHI. These servicing rights generally had lower servicing fees due
to the lower proportion of government loans in HHI's servicing portfolio.
Amortization of mortgage servicing rights is recorded over the estimated
servicing period in proportion to estimated servicing revenue and increased from
$16.4 million in the first quarter of fiscal 1997 to $39.8 million in the second
quarter of fiscal 1997 as a result of a higher average servicing portfolio.
Risk Management Activities
HomeSide has a risk management program designed to protect the economic
value of its mortgage servicing portfolio from declines in value due to
increases in estimated loan prepayment speeds, which are primarily influenced by
declines in interest rates. When loans prepay faster than anticipated, the cash
flow HomeSide expects to receive from servicing such loans is reduced. The value
of mortgage servicing rights is based on the present value of the cash flows to
be received over the life of the loan and therefore, the value of the servicing
portfolio declines as prepayments increase.
During the period March 16, 1996 to November 30, 1996, HomeSide purchased
options on U.S. Treasury bond futures to protect a significant portion of the
market value of its mortgage servicing portfolio from a decline in value. The
option contracts used by HomeSide have characteristics such that they tend to
increase in value as interest rates decline. Conversely, these option contracts
tend to decline in value as interest rates rise. Accordingly, changes in value
of these securities will tend to move inversely with changes in value of
HomeSide's mortgage servicing rights.
These option contracts are designated as hedges on the purchase date and
such designation must be at a level at least as specific as the level at which
mortgage servicing rights are evaluated for impairment. The option contracts are
marked-to-market with changes in market value deferred and recognized as an
adjustment to the cost of the related mortgage servicing right asset being
hedged. As a result, any changes in market value that are deferred are amortized
and evaluated for impairment in the same manner as the related mortgage
servicing rights. The effectiveness of HomeSide's hedging activity can be
measured by the correlation between changes in the value of the option and
changes in the value of HomeSide's mortgage servicing rights. This correlation
is assessed on a quarterly basis to ensure that high correlation is maintained
over the term of the hedging program. During the periods presented, HomeSide has
experienced a high measure of correlation between changes in the value of
mortgage servicing rights and the option contracts. However, in periods of
rising interest rates, the increase in value of mortgage servicing rights may
outpace the decline in value of the option contracts since the loss on the
options is limited to the premium paid.
Since HomeSide's inception, cumulative gains and losses on risk management
contracts resulted in a $60.2 million net gain which reduced the cost basis of
mortgage servicing rights at November 30, 1996. Of the $60.2 million of net
gains included in the carrying value of HomeSide's mortgage servicing rights
portfolio, $133.3 million of gains occurred during the third quarter of fiscal
1997 and offset deferred losses of $74.7 million recorded during the first and
second quarters of fiscal 1997. HomeSide's future cash needs as they relate to
its hedging program will be influenced by such factors as long-term interest
rates, loan production levels and growth in the mortgage servicing portfolio.
The fair value of open risk management contracts at November 30, 1996 was $162.4
million, which was equal to their carrying amount because the options are
marked-to-market at each reporting date. See "-- Liquidity and Capital
Resources" for further discussion of HomeSide's sources and uses of cash. See
Note 3 of Notes to Consolidated Financial Statements on F-5 for a
14
<PAGE> 60
description of HomeSide's accounting policy for its risk management contracts.
See Notes 10 and 11 of Notes to Consolidated Financial Statements on pages F-12
through F-14 for additional fair value disclosures with respect to HomeSide's
risk management contracts.
Net Interest Revenue
Net interest revenue was $4.6 million during the second quarter of fiscal
1997 compared to $9.1 million during the third quarter of fiscal 1997. Net
interest revenue during the third quarter of fiscal 1997 was comprised of
interest income of $25.2 million, which was offset by interest expense of $16.1
million on HomeSide's borrowings. Interest income and expense during the second
quarter of fiscal 1997 were $22.3 million and $17.7 million, respectively. The
increase in interest income during the third quarter of fiscal 1997 was the
result of an increase in the average balance of loans held for sale from $1.3
billion in the second quarter of fiscal 1997 to $1.4 billion during the third
quarter of fiscal 1997. Interest expense decreased from $17.7 million in the
second quarter of fiscal 1997 to $16.1 million during the third quarter of
fiscal 1997. Lower short-term interest rates and the improved pricing on
borrowings under the Bank Credit Agreement contributed to this reduction.
Net interest revenue increased from $0.1 million during the first quarter
of fiscal 1997 to $4.6 million during the second quarter of fiscal 1997. Net
interest revenue during the second quarter was comprised of interest income of
$22.3 million and was offset by interest expense of $17.7 million on HomeSide's
borrowings. Interest income and expense during the first quarter of fiscal 1997
were $12.7 million and $12.6 million, respectively. The increases in interest
income and interest expense during the second quarter are the result of an
increase in the average balance of mortgage loans held for sale from $770
million in the first quarter of fiscal 1997 to $1.3 billion during the second
quarter of fiscal 1997 and an increase in the average balance of notes payable
to banks from $1.3 billion to $2.0 billion, from the first quarter to the second
quarter of fiscal 1997, respectively. The Parent's acquisition of HHI on May 31,
1996, and subsequent transfer of assets to HomeSide, generally contributed to
the increased balances of mortgage loans held for sale and borrowings. Interest
income during the second quarter was also positively affected by a general
increase in long-term interest rates during the second quarter.
Interest expense for HomeSide does not include interest expense associated
with $200 million of 11.25% Parent Notes issued by the Parent. Payment of
principal and interest on these notes is dependent on the cash flows generated
by HomeSide and HHI. During the first, second and third quarters of fiscal 1997,
the Parent recorded interest expense on the Parent Notes of $2.3 million, $6.0
million and $6.0 million, respectively.
Net Mortgage Origination Revenue
Net mortgage origination revenue was $16.5 million during the third quarter
of fiscal 1997 compared to $16.3 million during the second quarter of fiscal
1997, a $0.2 million increase. Net mortgage origination revenue is comprised of
fees earned on the origination of mortgage loans, gains and losses on the sale
of loans, gains and losses resulting from hedges of secondary marketing activity
and fees charged to correspondents for the review of loan documents. Net
mortgage origination revenue also includes gains from excess mortgage servicing
receivables. As noted above, loan production, exclusive of bulk servicing
acquisitions, was $5.5 billion for the third quarter of fiscal 1997, slightly
higher than the second quarter of fiscal 1997 loan production, excluding bulk
acquisitions. HomeSide's primary origination activities during the second and
third quarters of fiscal 1997 took place through correspondent and co-issue
channels. Currently, HomeSide expects these channels to continue to be the
primary loan origination sources in the future.
Net mortgage origination revenue was $16.3 million during the second
quarter of fiscal 1997 compared to $10.8 million during the first quarter of
fiscal 1997, a 51% increase. As noted above, loan production, exclusive of bulk
servicing acquisitions, was $5.5 billion for the second quarter of fiscal 1997,
$1.7 billion, or 45% higher than the first fiscal quarter loan production of
$3.8 billion. The increase in loan production is reflective of the production
from the preferred seller relationship with Barnett established as part of the
HHI Acquisition. HomeSide's primary origination activities during the first and
second quarters of fiscal 1997 were through correspondent and co-issue channels.
HomeSide expects these channels to continue to be the primary loan origination
sources in the future.
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Salaries and Employee Benefits
Salaries and employee benefits expense decreased $0.5 million, or 2.5%,
from $21.2 million in the second quarter of fiscal 1997 to $20.7 million during
the third quarter of fiscal 1997. The decrease was due to the continuing
integration of the Barnett servicing operations. The average number of full-time
equivalent employees fell from 1,879 during the second quarter of fiscal 1997 to
1,708 during the third quarter of fiscal 1997.
Salaries and employee benefits expense increased $9.7 million, or 84%, from
$11.5 million in the first quarter of fiscal 1997 to $21.2 million during the
second quarter of fiscal 1997. The increase was due to growth in the number of
employees as a result of the acquisition of HHI on May 31, 1996. The average
number of full-time equivalent employees grew from 1,096 during the first
quarter of fiscal 1997 to 1,879 during the second quarter of fiscal 1997.
Occupancy and Equipment Expense
Occupancy and equipment expense increased $0.2 million from $3.1 million
during the second quarter of fiscal 1997 to $3.3 million during the third
quarter of fiscal 1997. Occupancy and equipment expense primarily includes
rental expense, repairs and maintenance costs, certain computer software
expenses and depreciation of HomeSide's premises and equipment.
Occupancy and equipment expense increased $1.3 million, or 67%, from $1.8
million during the first quarter to $3.1 million during the second quarter of
fiscal 1997. The increase in occupancy and equipment expense was due to certain
premises and equipment acquired from HHI and increases in information systems
required to handle the growing mortgage servicing portfolio.
Servicing Losses on Investor-Owned Loans
Servicing losses on investor-owned loans increased from $4.1 million for
the second quarter of fiscal 1997 to $5.0 million for the third quarter of
fiscal 1997, a 22% increase. Servicing losses on investor-owned loans primarily
represent anticipated losses primarily attributable to servicing FHA and VA
loans for investors. These amounts include actual losses for final disposition
of loans, accrued interest for which payment has been denied, and estimates for
potential losses based on HomeSide's experience as a servicer of government
loans.
Servicing losses on investor-owned loans increased slightly from $3.9
million for the first quarter of fiscal 1997 to $4.1 million for the second
quarter of fiscal 1997, a 3% increase.
Included in the balance of accounts payable and accrued liabilities at
November 30, 1996 is a reserve for estimated servicing losses on investor-owned
loans of $21.6 million. The reserve has been established for potential losses
related to the mortgage servicing portfolio. Increases to the reserve are
charged to earnings as servicing losses on investor-owned loans. The reserve is
decreased for actual losses incurred related to the mortgage servicing
portfolio. HomeSide's historical loss experience on VA loans generally has been
consistent with industry experience.
Other Expense
Other expense decreased $0.8 million from $12.2 million for the second
quarter of fiscal 1997 to $11.4 million during the third quarter of fiscal 1997.
Other expense consists mainly of professional fees, communications expense,
advertising and public relations and certain loan origination expenses. The
level of other expense will fluctuate in part based upon the level of HomeSide's
mortgage servicing portfolio and loan production volumes. Future production
levels are dependent on the level of long-term interest rates and other economic
factors, which are difficult to accurately predict.
Other expense increased $6.9 million from $5.3 million for the first
quarter of fiscal 1997 to $12.2 million during the second quarter of fiscal
1997.
Provision for Income Taxes
HomeSide's provision for income taxes was $11.4 million during the third
quarter of fiscal 1997, an increase of $1.9 million over the $9.5 million
provision recorded during the second quarter of fiscal 1997. The provision for
income taxes for the period March 16, 1996 to May 31, 1996 was $5.5 million. The
effective income tax rate for the first, second and third quarters of fiscal
1997 was approximately 41%.
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LIQUIDITY AND CAPITAL RESOURCES
Operations
Net cash used in operations was $169.0 million for the period March 16,
1996 to November 30, 1996. The primary uses of cash in operations were to fund
loan originations and pay corporate expenses. These uses of cash were partially
offset by cash provided from servicing fee income, loan sales and principal
repayments. Cash flows from loan originations are dependent upon current
economic conditions and the level of long-term interest rates. Decreases in
long-term interest rates generally result in higher loan refinancing activity
which results in higher cash demands to meet increased loan production levels.
Cash needs in times of increased production are primarily met through borrowings
and loan sales.
Investing
Net cash used in investing activities was $675.7 million during the period
March 16, 1996 to November 30, 1996. Cash used in investing activities was
primarily used for the purchase and origination of mortgage servicing rights and
the purchase of options on U.S. Treasury bond futures as part of HomeSide's
hedging program. During the period March 16, 1996 to November 30, 1996, HomeSide
also made payments of $133.4 million and $106.2 million to acquire certain
mortgage banking operations of HLI and HHI, respectively (see Note 4 of Notes to
Consolidated Financial Statements). Future uses of cash for investing activities
will be dependent on the mortgage origination market and HomeSide's hedging
needs. HomeSide is not able to estimate the timing and amount of cash uses for
future acquisitions of other mortgage banking entities, if such acquisitions
were to occur.
Financing
During the period March 16, 1996 to November 30, 1996, HomeSide had $845.9
million of net cash provided by financing activities. The primary sources of
cash from financing activities during the period were $346.4 million of capital
contributed from the Parent and net borrowings under HomeSide's line of credit
of $526.5 million. Cash used in financing activities was used to fund operations
of the Parent, primarily interest payment obligations on the Parent Notes, and
the payment of debt issue costs related to the Bank Credit Agreement.
Cash from financing activities was also provided by the three-year senior
secured revolving credit facility that was entered into by the Issuer on March
15, 1996 and re-issued as part of the Bank Credit Agreement on May 31, 1996. The
line of credit is subject to a $2.5 billion limit and is secured by primarily
all of the assets of the Issuer and the servicing rights retained by HHI. The
$2.5 billion commitment is comprised of a servicing secured credit facility,
capped at $950 million, and a warehouse loan commitment. Drawings under the line
of credit bear interest at rates per annum based on, at HomeSide's option, (A)
the highest of (i) the lead bank's prime rate, (ii) the secondary market rate of
certificates of deposit plus 100 basis points, and (iii) the federal funds rate
in effect from time to time plus 0.5%, or (B) a eurodollar rate. Cash provided
by the Issuer's line of credit facility is the result of borrowings needed to
finance loan origination activity. In periods of higher loan origination
activity, cash needs are greater and, accordingly, HomeSide must borrow under
the credit facility in order to meet production demand. In periods of reduced
loan demand, proceeds from loan sales can be used to pay down the credit
facility. In future periods, it is expected that cash financing needs will
primarily be met from drawings under the Bank Credit Agreement and other bank
facilities which may be entered into from time to time, as well as from the
issuance of Debt Securities in the public markets. There can be no assurance
that such additional bank facilities will be available or that market conditions
at any given time will be such that public issuances of Debt Securities can be
effected on favorable terms. On January 15, 1997, the Issuer entered into a
short term credit facility (the "Chase Facility") with The Chase Manhattan Bank
in an aggregate principal amount of $85.0 million. On March 14, 1997, the Issuer
entered into a short term credit facility (the "Merrill Facility") with an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") in an aggregate principal amount of $35.0 million. The Chase Facility
and the Merrill Facility each expire on the earlier to occur of (i) April 1,
1997, or (ii) the consummation of the sales of the Notes offered hereby.
Drawings under both the Chase Facility and the Merrill Facility bear interest at
the greater of (i) The Chase Manhattan Bank's prime rate, (ii) the secondary
market rate for certificates of deposit (grossed up for maximum statutory
requirements) plus 1% and (iii) the federal funds effective rate from time to
time plus 0.5%.
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On January 31, 1997, the Bank Credit Facility was amended and restated in
connection with the issuance of the Parent's Common Stock to the public. See
"Description of Certain Indebtedness -- Bank Credit Agreement."
HomeSide expects to pay dividends to the Parent only to the extent
necessary to meet debt obligations and income tax expense of the Parent. The
ability of HomeSide to pay dividends to the Parent for other purposes is
restricted by covenants contained in the Bank Credit Agreement. During the
period March 16, 1996 to November 30, 1996, HomeSide declared and paid dividends
of $13,820,000 to the Parent. For more information, see Note 7 of Notes to
Consolidated Financial Statements of HomeSide.
During the period March 16, 1996 to November 30, 1996, net cash used in
operations and investing activities was $169.0 million and $675.7 million,
respectively, while cash provided by financing activities was $845.9 million,
resulting in a net increase in cash of $1.2 million. HomeSide expects that to
the extent cash generated from operations is inadequate to meet its liquidity
needs, those needs can be met through financing from its bank credit facility.
Accordingly, HomeSide does not currently anticipate that it will make sales of
servicing rights to any significant degree for the purpose of generating cash.
Nevertheless, in addition to its cash and mortgage loans held for sale balances,
HomeSide's servicing rights portfolio provides a potential source of funds to
meet liquidity requirements, especially in periods of rising interest rates when
loan origination volume slows. Future cash needs are highly dependent on future
loan production and servicing results, which are influenced by changes in
long-term interest rates.
New Accounting Standard
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"). SFAS 125, among other things, provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS 125 requires that after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS 125 also
requires that liabilities and derivatives incurred or obtained by transferors as
part of a transfer of financial assets be initially measured at fair value. SFAS
125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
applied prospectively. Management expects that the impact of SFAS 125 on the
results of operations, financial condition, or liquidity of HomeSide will be
immaterial.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- HLI
JANUARY 1, 1996 TO MARCH 15, 1996
AND
JANUARY 1, 1995 TO MARCH 31, 1995
GENERAL
On March 15, 1996, the HLI Acquisition was consummated. On May 31, 1996,
the HHI Acquisition was consummated. See "The Acquisitions".
The interim financial statements of HLI have been prepared for the period
January 1, 1996 to March 15, 1996 to coincide with the closing of the HLI
Acquisition. Results of operations for periods subsequent to March 15, 1996 are
included in the financial statements of HomeSide. Results of operations for the
three months ended March 31, 1995 have been presented for comparative purposes.
Unless otherwise noted, for purposes of the Management's Discussion and Analysis
of Financial Condition and Results of Operations -- HLI, references to the first
quarter 1996 pertain to the period January 1, 1996 to March 15, 1996. The
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- HLI for the first quarter of 1996 and 1995 should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three years ended December 31, 1995 appearing
elsewhere in this Prospectus.
RESULTS OF OPERATIONS
For purposes of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- HLI" the term "HLI" means HLI prior to
the closing of the HLI Acquisition.
Summary
Long-term interest rates declined through mid-February 1996, the
continuation of a trend which began in 1995. This decline led to an increase in
loan production to $4.2 billion during the first quarter of 1996 from $1.2
billion during the first quarter of 1995, and resulted in growth in HLI's
servicing portfolio, which increased from $41.6 billion at December 31, 1995 to
$44.2 billion at March 31, 1996. Beginning in late February and continuing
through March 1996, long-term interest rates increased and negatively impacted
HLI's results of operations for the first quarter. HLI reported a net loss of
$73.9 million during the first quarter of 1996, compared to net income of $3.4
million in the first quarter of 1995. The decrease in net income was primarily
due to losses on HLI's risk management contracts of $128.8 million during the
first quarter of 1996 as a result of increasing interest rates in late February
and March 1996.
Net Servicing Revenue
Servicing activities include collection of mortgage principal, interest and
escrow payments; remitting these payments to investors, maintaining records of
loans and escrows and management of certain loan default activities. Servicing
fees are typically expressed as a percentage of UPB and are collected from the
monthly remittances of the borrower before being paid to the investor. HLI is
one of the largest servicers of government insured and guaranteed loans. These
loans receive a higher servicing fee as compared to conventional loans to
compensate for the additional risks associated with FHA/VA loans (see
"-- Servicing Losses on Investor-Owned Loans").
During the first quarter of 1996, HLI had servicing expenses in excess of
servicing revenues ("net servicing expense") of $97.1 million, as compared to
servicing revenues in excess of servicing expenses ("net servicing revenue") of
$24.2 million in the first quarter of 1995. The net servicing expense in 1996
was primarily due to losses on HLI's risk management contracts. Excluding the
effect of risk management contracts, net servicing revenue increased from $20.6
million in the first quarter 1995 to $31.7 million in the first quarter 1996. In
the first quarter of 1995, HLI recorded gains on risk management contracts of
$3.6 million. Due to an increase in long-term interest rates in late February
and early March 1996, HLI experienced losses on risk management contracts of
$128.8 million during the quarter. Changes in the value of HLI's mortgage
servicing rights substantially offset the loss on risk management contracts.
However, such changes in value were not fully recorded in the financial
statements of HLI because servicing rights were recorded at the lower of
amortized cost or market value.
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The decrease in net servicing revenue was partially offset by a reduction
in amortization of mortgage servicing rights from $23.1 million in the first
quarter of 1995 to $7.2 million in the first quarter of 1996. The reduction in
amortization was due to the increase in long-term interest rates noted above,
which had a favorable effect on prepayment estimates used in calculating HLI's
periodic amortization expense. Since mortgage servicing rights are amortized
over the expected period of service fee revenues, a reduction in prepayment
activity typically results in a longer amortization period and, accordingly,
lower amortization expense for each reporting period. Amortization charges are
highly dependent upon the level of prepayments during the period and the change
in prepayment expectations, which are significantly influenced by the direction
and level of long-term interest rate movements.
Risk Management Activities
HLI has a risk management program designed to protect the economic value of
its mortgage servicing portfolio from declines in value due to increases in
estimated prepayment speeds, which are primarily influenced by declines in
interest rates. When loans prepay faster than anticipated, the cash flow HLI
expects to receive from servicing such loans is reduced. The value of mortgage
servicing rights is based on the present value of the cash flows to be received
over the life of the loans. Therefore, the value of the servicing portfolio
declines as prepayments increase.
To implement its risk management objectives, HLI purchases risk management
contracts that are designed to increase in value when long-term interest rates
decline, or when prepayment speeds increase above a specified level. During the
period ended March 15, 1996, HLI purchased options on U.S. Treasury bond futures
to protect a significant portion of the market value of its mortgage servicing
portfolio from a decline in value. The option contracts used by HLI have
characteristics such that they tend to increase in value as interest rates
decline. Conversely, these option contracts tend to decline in value as interest
rates rise. Accordingly, changes in value of these contracts will tend to move
inversely with changes in value of HLI's mortgage servicing rights. For a
discussion of the results of HLI's risk management activities for the period
ended March 15, 1996, see the previous subsection entitled "Net Servicing
Revenue."
Net Interest Expense
Net interest expense represents interest earned on warehouse loans and on
mortgage loans held for investment purposes, less interest expense incurred to
fund such loans and certain other assets including mortgage servicing rights.
Net interest expense decreased from $2.0 million in the first quarter of 1995 to
$1.7 million in the first quarter of 1996, primarily due to an increase in
long-term interest rates during February and March 1996 without a corresponding
increase in short-term interest rates on its credit facility. This increase in
long-term interest rates had a positive impact on HLI's interest spread, which
was the difference between interest revenue and interest expense, by increasing
HLI's yield on its loans held for sale. The increase in interest income was
impacted by an increase in the average balance of HLI's loans held for sale from
$124.6 million during the first quarter of 1995 to $535.6 million during the
first quarter of 1996. An increase in the average balance of loans held for
sale, therefore, increased HLI's interest revenue during the first quarter of
1996 as compared to 1995. Interest expense was incurred on HLI's credit facility
with Bank of Boston, which was primarily influenced by short-term interest
rates. For the periods presented, interest earned on loans held for sale was
less than interest expense on borrowings, thereby creating net interest expense
for HLI.
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Net Mortgage Origination Revenue (Expense)
Net mortgage origination revenue (expense) increased from ($1.1) million in
the first quarter of 1995 to $7.6 million in the first quarter of 1996. The
following table sets forth HLI's origination activity for the three months ended
March 31, 1995 and 1996:
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1995 1996
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Correspondent.......................................... $ 314 $2,031
Co-issue(a)............................................ 755 1,597
Broker................................................. 28 191
------ ------
Total wholesale........................................ 1,097 3,819
Retail................................................. 85 368
------ ------
Total production....................................... $1,182 $4,187
====== ======
</TABLE>
- ---------------
(a) Represents the acquisition of servicing rights, not the underlying loans.
Amounts represent UPB of mortgage debt to which the acquired servicing
rights relate.
The increase in net origination revenue during the first quarter of 1996
was partially due to the adoption of Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122") as of January
1, 1996, which had the effect of increasing net mortgage origination revenue by
$2.1 million. In previous periods, the cost of mortgage servicing rights on a
loan originated by HLI was included in the basis of the related loan. SFAS 122
requires that the cost of an originated loan that is sold with servicing
retained be allocated between the loan sold and the servicing rights retained.
Consequently, the cost basis of loans originated in 1996 by HLI was lower than
the basis that would have been recorded prior to the adoption of SFAS 122 and
resulted in additional gain on the sale of loans. The remaining increase was due
to increases in origination income resulting from higher loan production
volumes.
Gain on Sales of Servicing Rights
Gain on sales of servicing rights during the first quarter of 1995 were
$4.3 million. The gain was due to the sale of servicing rights on loans with a
principal balance of $1.1 billion. There were no sales of servicing rights
during the first quarter of 1996, since the factors that would have made such a
sale advantageous were not present. HLI's decision to sell mortgage servicing
rights depends on a variety of factors, including the available markets and
current prices for such servicing rights and the working capital requirements of
HLI. The likelihood of future sales of mortgage servicing rights, or the
profitability on such sales, cannot be predicted.
Salaries and Employee Benefits
Salaries and employee benefits decreased $1.4 million, or 12.1%, from $11.7
million in the first quarter of 1995 to $10.3 million in the first quarter of
1996. Direct loan origination costs, principally salary and employee benefit
costs, were included in the cost basis of the mortgage loans and, therefore,
they were not recognized until the sale of the loans. Including these
capitalized loan costs, salaries and employee benefits increased $0.7 million,
or 5.8%, from $12.8 million in the first quarter of 1995 to $13.5 million in the
first quarter of 1996. The increase reflected general salary and benefit
increases as compared to the first quarter of 1995 and a slight increase in the
number of full-time equivalent employees from 1,117 as of March 31, 1995 to
approximately 1,120 as of March 15, 1996.
Occupancy and Equipment Expense
Occupancy and equipment expense decreased $0.4 million, from $2.4 million
for the first quarter of 1995 to $2.0 million for the first quarter of 1996. The
decrease was primarily due to a decline in equipment repair and maintenance
expenses in the first quarter of 1996 as compared to the first quarter of 1995.
Servicing Losses on Investor-Owned Loans
Servicing losses on investor-owned loans increased from $0.7 million in the
first quarter of 1995 to $5.6 million in the first quarter of 1996. The increase
was primarily due to a change in the VA's method of calculating the amount it
will guarantee on any loan, coupled with planned military base closings in
California that may have an impact on the performance of certain VA loans
serviced by HLI. The increase in the VA marketing rate effectively represents a
potential increase in HLI's exposure on properties conveyed to the VA.
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<PAGE> 67
HLI analyzed the effect of these factors on the level of its reserve for
estimated servicing losses and recorded a higher provision in the first quarter
of 1996 in order to bring the reserve to an acceptable level.
Real Estate Owned Expense
Real estate owned expense is incurred from foreclosed properties on which
HLI has taken title and includes declines in the value of the property, as well
as the incurrence of property holding and maintenance costs. Real estate owned
expense increased from $0.2 million in the first quarter of 1995 to $0.3 million
in the first quarter of 1996. The change was due to an increase in the average
balance of real estate owned from $1.2 million during the first quarter of 1995
to $2.6 million during the first quarter of 1996.
Other Expense
Other expense increased $2.7 million, from $4.7 million during the first
quarter of 1995 to $7.4 million in the first quarter of 1996. The increase was
the result of a $0.5 million increase in communications expense and a $0.4
million increase in loan expense, coupled with a decrease in expense credits
resulting from a decline in early pool buyout activity in 1996. These increases
are reflective of the increase in HLI's servicing portfolio, $44.2 billion at
March 31, 1996 as compared to $37.8 billion at March 31, 1995, and higher loan
production levels in the first quarter of 1996 as compared to the first quarter
of 1995.
Provision for (benefit from) Income Taxes
HLI's benefit from income taxes was $42.5 million during the first quarter
of 1996 as compared to a provision for income taxes of $2.3 million in the first
quarter of 1995. The change in HLI's income tax provision was the result of a
decline in pre-tax income during the first quarter of 1996 as compared to the
first quarter of 1995, and a decrease in the effective tax rate from 39.9%
during the first quarter of 1995 to 36.5% during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Overview
HLI's primary sources of cash are revenues earned from the servicing of
mortgage loans and cash generated from the origination and sale of mortgage
loans, as well as borrowings under HLI's line of credit. HLI has entered into a
new credit facility (see "-- Post-Acquisition Financing" below). HLI anticipates
that these sources of cash will be sufficient to meet its liquidity needs and
accordingly, does not currently anticipate that it will make sales of servicing
rights to any significant degree for the purpose of generating cash. HLI's
primary uses of cash are to fund loan originations and purchases, purchase bulk
servicing rights, repay its line of credit and pay general corporate expenses.
Operations
Net cash used in operations was $112.5 million for the first quarter of
1996 as compared to net cash provided by operations of $197.6 million for the
first quarter of 1995. The decrease in net cash provided by operating activities
was principally the result of a $453.3 million increase in net cash used in the
origination and purchase of loans held for sale. This is evidenced by the
increase in loan production from $1.2 billion during the first quarter of 1995
to $4.2 billion during the first quarter of 1996. The increase in cash used in
loan production activities was partially offset by a $62.6 million increase in
collection of accounts and mortgage claims receivable.
Investing
Net cash used in investing activities increased $83.7 million to $155.1
million in the first quarter of 1996 from $71.4 million during the first quarter
of 1995. The increase in cash used in investing activities was due to a $53.2
million increase in cash used for the purchase and origination of mortgage
servicing rights and a $66.7 million increase in the purchase of risk management
contracts. These increases were the result of higher loan production levels and
an increasing loan servicing portfolio. The increases noted above were partially
offset by a $40.0 million decrease in net originations of loans held for
investment.
Financing
During the first quarter of 1996, HLI had $290.0 million of net cash
provided by financing activities as compared to net cash used in financing
activities of $130.6 million during the first quarter of 1995. During the first
quarter of 1995, HLI had net repayments on its line of credit with Bank of
Boston of $130.5 million, as opposed to net borrowings of $290.0 million during
the first quarter of 1996. The level of borrowings is highly dependent on loan
production and servicing activity. As loan production and servicing increases,
HLI draws
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<PAGE> 68
more from its credit line, and conversely, as production and servicing levels
decrease, HLI is able to use excess cash to pay down the credit line. The net
borrowings for the first quarter of 1996, therefore, are the result of increased
loan production and held for sale balances as compared to the first quarter of
1995.
Post-Acquisition Financing
In connection with the HLI Acquisition, the Issuer entered into a $1.5
billion three year senior secured revolving credit facility maturing on March
15, 1999 that replaced the former line of credit with BKB. In connection with
the HHI Acquisition, the Issuer entered into a $2.5 billion three year senior
secured revolving credit facility maturing on May 31, 1999 that replaced the
line of credit entered into by the Issuer on March 15, 1996 in connection with
the HLI Acquisition and HHI's former line of credit with Barnett. The new
facility was replaced by the Bank Credit Agreement, which is comprised of a $2.5
billion warehouse commitment and a $950 million servicing commitment sublimit
and is funded by independent third party financial institutions. The Issuer's
total borrowing capacity under the Bank Credit Agreement is $2.5 billion, with
the servicing commitment portion capped at $950 million. The Bank Credit
Agreement provides financing for HomeSide's ongoing operations, including the
origination and servicing of residential mortgage loans, other working capital
and general corporate purposes. See "Description of Bank Credit Agreement."
On May 14, 1996, the Parent issued $200 million principal amount of the
Parent Notes. The Parent Notes mature May 15, 2003 and pay interest semiannually
in arrears on May 15 and November 15 of each year, commencing November 15, 1996.
The Parent Notes are redeemable at the option of the Parent, in whole or in
part, at any time on or after May 15, 2001, at certain pre-set redemption
prices. Upon issuance, $90.0 million of the proceeds were used to pay-off bridge
financing incurred in the HLI Acquisition, $87.5 million was placed into escrow
pending completion of the HHI Acquisition, $6.5 million was used to pay
underwriting expenses and the remaining $16.0 million was used to repay
borrowings under HLI's former credit facility. The $87.5 million was released
from escrow on May 31, 1996 concurrently with the completion of the HHI
Acquisition. The Parent intends to repay $70 million principal amount of the
Parent Notes with a portion of the proceeds from the January 1997 public
offering of the Parent's Common Stock.
The Issuer also has a mortgage note payable with interest at 9.50% maturing
in 2017. HomeSide's main office building is pledged as collateral for such note,
and certain restrictions and/or penalties apply with respect to the Issuer's
ability to refinance this note.
For the period January 1, 1996 through March 15, 1996 net cash used in
operating activities and in investing activities was $112.5 million and $155.1
million, respectively, while cash provided by financial activities amounted to
$290.0 million, resulting in a net increase in cash of $22.4 million. The Issuer
expects that to the extent cash generated from operations is inadequate to meet
its liquidity needs, those needs can be met through financing from its credit
facilities and other bank facilities which may be entered into from time to
time, as well as from the issuance of Debt Securities in the public markets.
There can be no assurance that such additional bank facilities will be available
or that market conditions at any given time will be such that public issuances
of Debt Securities can be effected on favorable terms. The Issuer does not
currently anticipate that it will make sales of servicing rights to any
significant degree for the purpose of generating cash. Nevertheless, in addition
to its cash and loans held for sale balances, the Issuer's servicing rights
portfolio provides a potential source of funds to meet liquidity requirements,
especially in periods of rising interest rates when loan origination volume
slows. Future cash needs are highly dependent on future loan production and
servicing results, which are influenced by changes in long-term interest rates.
THREE YEARS ENDED DECEMBER 31, 1995
GENERAL
Prior to March 15, 1996, HLI was a wholly-owned subsidiary of Bank of
Boston, a subsidiary of Bank of Boston Corporation ("BKBC"). In December 1995,
Bank of Boston signed an agreement to sell HLI to the Parent. At the closing of
the HLI Acquisition, Bank of Boston received cash and approximately a 45% equity
interest in the Parent. Also at the closing of the HLI Acquisition, THL and MDP
collectively acquired approximately a 55% interest in the Parent.
On March 4, 1996, the Parent signed an agreement to acquire from Barnett
all of the outstanding stock of HHI. At the closing of the HHI Acquisition,
certain assets and liabilities of HHI were retained by Barnett, including those
assets of HHI and its subsidiaries (other than Honolulu Mortgage) associated
with the loan
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<PAGE> 69
origination or production activities of such entities. Upon closing of the HHI
Acquisition, Barnett received cash and Siesta, an affiliate of Barnett, acquired
an ownership interest in the Parent such that each of (i) Siesta, (ii) BKB, and
(iii) THL and MDP, collectively, owns approximately a 33% interest in the
Parent.
On June 1, 1995, HLI purchased certain assets and assumed certain
liabilities of Bell Mortgage Company ("Bell Mortgage"), a privately-held
mortgage origination company located in Minneapolis, Minnesota. The acquisition
of Bell Mortgage was accounted for under the purchase method of accounting.
Results of operations of Bell Mortgage are included in the 1995 consolidated
financial statements from the date of acquisition. See Note 16 of Notes to
Consolidated Financial Statements of HLI on F-54 for further discussion.
HLI operates as a full-service mortgage banking firm emphasizing wholesale
mortgage originations and low cost mortgage servicing. Servicing activities
represent HLI's primary revenue source. HLI also generates revenue, to a lesser
extent, from mortgage loan origination fees. HLI incurs expenses for
amortization of mortgage servicing rights, interest on its line of credit and
general corporate activities.
RESULTS OF OPERATIONS
For purposes of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- HLI" the term "HLI" means HLI prior to
the closing of the HLI Acquisition.
Summary
HLI reported net income of $58.8 million in 1995, $5.4 million in 1994 and
a net loss of $85.2 million in 1993. Net income in 1994 included an after tax
positive effect of $3.5 million from a change in the accounting for mortgage
servicing fee income. The net loss in 1993 includes an after tax charge of $59.9
million for a change in HLI's method of valuing purchased mortgage servicing
rights, which was partially offset by an after tax benefit of $6.1 million
resulting from the cumulative effect on prior years of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" as of
January 1, 1993. Prior to the effect of the adjustments noted above, HLI had
income of $58.8 million in 1995, $2.0 million in 1994 and a loss of $31.4
million in 1993. See Notes 2 and 10 of Notes to Consolidated Financial
Statements for further discussion of HLI's accounting changes.
The increase in net income in 1995 as compared to 1994 was primarily due to
factors that resulted from a decrease in interest rates coupled with growth in
HLI's servicing portfolio. The lower interest rate environment resulted in a
gain related to HLI's risk management activities in 1995 as compared to a loss
in 1994. See "-- Risk Management Activities." HLI also benefited from a 9%
increase in its residential servicing portfolio from $38.0 billion at December
31, 1994 to $41.6 billion at December 31, 1995. The increases were partially
offset, however, by higher mortgage servicing rights amortization charges as a
result of increased servicing volumes and higher prepayment activity in 1995.
The loss before the cumulative effect of changes in accounting principles in
1993 was primarily due to unscheduled mortgage servicing rights amortization
that resulted from a declining interest rate environment.
Net Servicing Revenue
Servicing activities include collection of mortgage principal, interest and
escrow payments; remitting these payments to investors; and maintaining records
of loans and escrows. Servicing fees are typically expressed as a percentage of
UPB and are collected from the monthly remittances of the borrower before being
paid to the investor. HLI is one of the largest servicers of government insured
and guaranteed loans. These loans receive a higher servicing fee as compared to
conventional loans to compensate for the additional risks associated with FHA/VA
loans (see "-- Servicing Losses on Investor-Owned Loans").
The following table sets forth the composition of HLI's servicing portfolio
by UPB:
<TABLE>
<CAPTION>
AT DECEMBER 31,(A)
------------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
FHA/VA.................................... $ 12,524 $ 15,695 $ 19,880
Conventional.............................. 14,130 20,113 21,041
-------- -------- --------
Total........................... $ 26,654 $ 35,808 $ 40,921
======== ======== ========
</TABLE>
- ---------------
(a) Excludes loans purchased not yet on servicing system.
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<PAGE> 70
Net servicing revenue increased from $67.0 million to $173.7 million, an
increase of $106.7 million or 159.3%, from 1994 to 1995. This increase was
comprised of a $115.4 million rise in gain on risk management contracts and a
$32.5 million increase in mortgage servicing fees, offset by a $41.2 million
increase in amortization of mortgage servicing rights. The gain on risk
management contracts resulted primarily from a decline in interest rates in the
fourth quarter of 1995 and was substantially offset by a related decrease in the
economic value of the servicing portfolio, which was not reflected in earnings
for the period. The cost of acquiring the right to service mortgage loans
originated by others is capitalized and amortized as a reduction of servicing
fee revenue over the estimated servicing period. The increases in mortgage
servicing fees and amortization of mortgage servicing rights were primarily due
to growth in HLI's average servicing portfolio during 1995. Average servicing
fees decreased slightly from 0.389% in 1994 to 0.383% in 1995.
At December 31, 1995, HLI serviced approximately 510,000 loans, including
loans purchased not yet on HLI's servicing system, with UPB of $41.6 billion,
compared to approximately 484,000 loans with UPB of $38.0 billion at December
31, 1994, an increase of $3.6 billion, or 9.5%. The average servicing volume
increased from $33.2 billion in 1994 to $39.3 billion in 1995, an increase of
$6.1 billion or 18.4%. Growth in HLI's servicing portfolio has been primarily
generated by wholesale loan production, which includes correspondent, co-issue
and broker channels. HLI also purchases servicing rights in bulk from other
mortgage servicing entities. Bulk purchases totalled $2.3 billion, $5.5 billion
and $0.7 billion in 1993, 1994 and 1995, respectively.
In addition to growth in the servicing portfolio, an increase in late fee
income contributed to the rise in mortgage servicing revenue during 1995. Late
fees are included in the consolidated statement of operations as a component of
mortgage servicing revenue. HLI instituted efforts to improve the collection of
ancillary fee income during the year which contributed to an increase in late
fee charges collected from $10.5 million in 1994 to $14.4 million in 1995. Late
fee income also increased as a result of increases in HLI's servicing portfolio
and average loan balance. The higher average loan balance translates into higher
loan payments on which late fees are based. There was little or no change in the
rate on which late fees were computed during 1995 as compared to 1994.
Net servicing revenue increased from $6.0 million to $67.0 million from
1993 to 1994, an increase of $61 million. This increase was comprised of a $28.7
million growth in mortgage servicing revenue and a $45.7 million decrease in
amortization of mortgage servicing rights, offset by a $13.4 million reduction
in gain on risk management contracts. The growth in servicing revenue was due to
an increase in HLI's average servicing portfolio from 1993 to 1994, as a result
of loan production and an increase in the average servicing fee rate from 0.372%
to 0.389%. At December 31, 1993, HLI serviced approximately 368,000 loans with
UPB of $28.0 billion, including loans purchased not yet on HLI's servicing
system, compared to approximately 484,000 loans with UPB of $38.0 billion at
December 31, 1994, an increase of $10.0 billion, or 35.7%. The average servicing
volume was $33.2 billion in 1994, as compared to $25.9 billion in 1993. The
decrease in amortization of $45.7 million was due to an increase in interest
rates during 1994 which reduced refinancing activities below the levels of 1993
and helped to reduce prepayments on HLI's servicing portfolio. High loan
prepayment activity shortens the estimated life of the associated mortgage
servicing right and, accordingly, accelerates the rate of mortgage servicing
amortization. The slower prepayment activity during 1994 increased the value of
HLI's servicing rights and reduced the amount of amortization required in 1994
as compared to 1993.
Risk Management Activities
HLI has a risk management program designed to protect the economic value of
its mortgage servicing portfolio from declines in value due to increases in
estimated prepayment speeds, which are primarily influenced by declines in
interest rates. When loans prepay faster than anticipated, the cash flow HLI
expects to receive from servicing such loans is reduced. Since the value of the
mortgage servicing rights is based on the present value of the cash flows to be
received over the life of the loan, the value of the servicing portfolio
declines as prepayments increase. Prior to 1994, risk management of the mortgage
servicing rights value was principally conducted by BKB as part of a
consolidated risk management program. Through the third quarter of 1995, BKB
continued to manage a portion of the risk associated with the servicing
portfolio.
To implement its risk management objectives, HLI purchases risk management
contracts that increase in value when long-term interest rates decline, or when
prepayment speeds increase above a specified level.
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<PAGE> 71
During 1994 and 1995, HLI purchased options on long-term United States Treasury
bond futures to protect a significant portion of the market value of its
mortgage servicing portfolio from a decline in value. The value of HLI's risk
management position is designed to perform inversely with changes in value of
mortgage servicing rights due to the effects of the changes in interest rates.
The options were marked to market at each reporting date with changes in value
reported in revenues. HLI recognized a gain on risk management contracts of
$108.7 million in 1995. While the value of the servicing portfolio declined, the
full effect of such decline was not reflected in HLI's financial results because
its value exceeded its book value. Due to a rising interest rate environment,
HLI experienced a $6.7 million loss related to its risk management contracts in
1994. In 1993, the decline in the value of mortgage servicing rights
substantially exceeded gains on risk management contracts realized by HLI. The
value of the servicing rights was included in BKB's consolidated risk management
program.
HLI recognized a gain on risk management contracts of $108.7 million in
1995, of which $86.5 million was unrealized. During the first quarter of 1996,
long-term interest rates increased, reversing the declining trend which
prevailed during 1995. As a result, through the date of the sale of HLI in March
1996, HLI recognized a loss on risk management contracts of $128.8 million,
which included a reversal of such $86.5 million unrealized gain recognized
during 1995. In 1995 and 1996, changes in the value of HLI's mortgage servicing
rights substantially offset the gain and loss on the risk management contracts.
However, such changes in value were not fully recorded in the financial
statements of HLI because servicing rights are recorded at the lower of
amortized cost or market value.
Net Interest Revenue/Expense
Net interest revenue represents interest earned on warehouse loans and on
mortgage loans held for investment purposes, less interest expense incurred to
fund such loans and certain other assets, including mortgage servicing rights.
HLI's net interest position was negatively impacted by a compression of its net
interest spread from 3.60% in 1993 to 2.57% in 1994 and 1.49% in 1995. In
addition, HLI's net interest revenue and expense position is affected by the
volume of loan originations, which have a direct effect on interest earned on
warehouse loans and interest paid on borrowings. During periods of reduced
production volume, HLI will have lower average balances of interest earning
loans and interest bearing warehouse debt. The entire mortgage loan origination
industry experienced a decline in production from 1993 to 1995. As reported by
Fannie Mae, United States total residential mortgage originations declined from
$1,020 billion in 1993 to $769 billion in 1994 and $654 billion in 1995.
During 1994 and 1995, HLI incurred net interest expense of $2.4 million and
$2.8 million, respectively. Interest revenue decreased $7.3 million during 1995
primarily as a result of a decrease in the average rate earned on warehouse
loans from 9.52% in 1994 to 7.78% in 1995. The reduction in interest revenue on
warehouse loans was partially offset by a $2.1 million increase in interest
earned on mortgage loans held for investment and a decrease in interest expense
of $6.8 million resulting from a decline in the average rate paid on HLI's
borrowings from 7.14% in 1994 to 6.89% in 1995.
HLI earned $6.0 million of net interest revenue during 1993 as compared to
$2.4 million of net interest expense in 1994. The change from 1993 to 1994 was
comprised of a decrease in interest revenue of $18.6 million partially offset by
a reduction in interest expense of $10.2 million. The decrease in interest
income was due to a decrease in the average balance of warehouse loans from
$529.7 million in 1993 to $272.0 million in 1994. The impact of decreased
average balances was partially mitigated by an increase in the average rate
earned on warehouse loans from 8.84% in 1993 to 9.52% in 1994 and a $2.2 million
increase in interest revenue on mortgage loans held for investment. The decrease
in interest expense from 1993 to 1994 was due to a reduction in borrowings on
the warehouse line of credit as a result of weaker loan production during 1994.
Net Mortgage Origination Revenue
HLI maintains various loan origination channels, including correspondent
flow and co-issue, brokered, telemarketing, affinity programs and retail
branches. Additionally, HLI purchases servicing rights in bulk from time to
time. HLI has continued to deemphasize its retail branch network in favor of
wholesale production. By primarily relying on wholesale originations, HLI avoids
high fixed costs in periods of lower market volumes as well as the high start-up
costs associated with entering new markets through retail expansion. This shift
to a more variable cost structure is expected to continue as HLI actively
reduces its retail production network. In
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<PAGE> 72
connection with the sale of HLI, Bank of Boston agreed to retain its retail
production facilities in New England, and HLI has sold or closed most of its
remaining retail branches.
The following table sets forth HLI's origination activity:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Wholesale:
Correspondent.................................. $ 4,955 $ 3,364 $ 3,778
Co-Issue(a).................................... 2,860 4,285 3,901
Broker......................................... 1,431 498 291
------- ------- -------
Total wholesale........................... 9,246 8,147 7,970
Retail.............................................. 2,125 788 915
-------- ------- -------
Total production.......................... $11,371 $ 8,935 $ 8,885
======= ======= =======
</TABLE>
- ---------------
(a) Represents the acquisition of servicing rights, not the underlying loans.
Amounts represent the UPB of mortgage debt to which the acquired servicing
rights relate.
Through its correspondent production channel, HLI buys loans from
approximately 500 financial intermediaries. Co-issue loan production is the
purchase of servicing rights from a correspondent subject to contracts to
deliver specified volumes on a monthly or quarterly basis. Under its broker
program, HLI funds loans at closing from a network of approximately 450 mortgage
brokers nationwide.
Net mortgage origination revenue includes gains and losses from sales of
mortgage loans, deferred origination fees and expenses (see "-- Salaries and
Employee Benefits") and the gains from excess servicing rights. Net mortgage
origination revenue decreased from $5.0 million in 1994 to $3.4 million in 1995,
or 31.4%, and from $6.2 million in 1993 to $5.0 million in 1994, or 19.0%.
During 1995 and 1994, HLI's loan production, excluding co-issue volume, was
$5.0 billion and $4.7 billion, respectively. The majority of these loans were
purchased through HLI's correspondent channel.
The decrease in net mortgage origination revenue from 1993 to 1994 was due
to a decrease in mortgage production during 1994. Loan production volume
decreased from $8.5 billion in 1993 to $4.7 billion in 1994, or 44.7%. The
declining interest rate environment in 1993 prompted a record number of
homeowners to refinance existing mortgages.
Gain on Sales of Servicing Rights
Gain on sales of servicing rights decreased $0.7 million from $10.9 million
in 1994 to $10.2 million in 1995 and increased $10.2 million from $0.7 million
in 1993. HLI sold servicing rights on loans of $1.9 billion, $0.8 billion and
$0.5 billion during 1995, 1994 and 1993, respectively. The sales of servicing
rights during 1994 consisted of primarily retail originated loans, for which a
servicing right asset was not recognized, and therefore there was little or no
basis in the servicing rights sold. The servicing rights sales in 1995 consisted
of a higher percentage of servicing on purchased loans, which had a higher basis
because servicing rights on purchased loans are capitalized. Since gain on sales
of servicing rights is determined as the excess of proceeds from the sale over
HLI's cost basis in the asset, gains will tend to be higher on sales of
servicing rights with little or no cost basis, as was the case for the sales in
1994. HLI's decision to sell mortgage servicing rights depends on a variety of
factors, including the available markets and current prices for such servicing
rights and the working capital requirements of HLI. The likelihood of future
sales of mortgage servicing rights, or the profitability on such sales, cannot
be predicted. HomeSide anticipates that the sale of servicing rights by HLI will
not be a significant component of its business strategy in the future.
Salaries and Employee Benefits
Salaries and employee benefits increased from $40.4 million in 1994 to
$45.4 million in 1995, or 12.4%, and from $33.1 million in 1993 to $40.4 million
in 1994, or 22.1%. Direct loan origination costs, principally salary and
employee benefit costs, are included in the cost basis of the mortgage loans
and, therefore, they are not recognized until the sale of the loans. Including
these capitalized costs, salaries and employee benefits increased from $51.5
million to $56.5 million from 1994 to 1995, or 9.7% and decreased from $56.2
million to $51.5 million from 1993 to 1994, or 8.3%.
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<PAGE> 73
The $5.0 million increase, including capitalized costs, in 1995 over 1994
included a $3.9 million increase in salaries and a $1.1 million increase in
benefits. The salary and benefit increases were the result of a larger
production staff needed to support HLI's growing servicing portfolio. Loan
production headcount grew from 498 full-time equivalent ("FTE") employees at
December 31, 1994 to 523 FTE employees at December 31, 1995. The increases to
salaries and benefits were partially offset by the outsourcing of certain
default administration and tax payment administration activities during 1995.
HLI determined that the performance of these services on a contracted basis was
more cost effective than maintaining the personnel and infrastructure necessary
to carry out these functions in-house.
The decrease in salaries and benefits from 1993 to 1994 was due to a
reduction of loan production during 1994 and lower incentive compensation
expenses. Loan production headcount fell from 806 at December 31, 1993 to 498 at
December 31, 1994. The decrease in salaries and employee benefits due to reduced
loan demand was partially offset by the assumption of certain risk management
functions formerly provided by BKB and an increased staff required to service a
larger portfolio.
Occupancy and Equipment Expense
Occupancy and equipment expense increased from $9.0 million in 1994 to
$10.0 million in 1995, or 11.1%, due primarily to the acquisition of Bell
Mortgage and the larger servicing operations.
Occupancy and equipment expense increased from $8.0 million in 1993 to $9.0
million in 1994, or 13.1%. This increase included a leasehold reserve of $0.3
million recorded in December 1994 for the planned closing of certain broker
branches that were subsequently closed during 1995.
Servicing Losses on Investor-Owned Loans
HLI periodically incurs losses attributable to servicing FHA and VA loans
for investors, including actual losses for final disposition of loans that have
been foreclosed or assigned to the FHA or VA and accrued interest on such FHA or
VA loans for which payment has not been received. Servicing losses on investor-
owned loans totaled $2.8 million, $7.2 million and $10.0 million for 1993, 1994
and 1995, respectively, primarily representing losses on VA loans. Because the
total principal amount of FHA loans is guaranteed, losses on such loans are
generally limited to expenses of collection. HLI has experienced minimal losses
from FHA loans. In respect of VA loans, the VA guarantees the initial losses on
a loan. The guaranteed amount generally ranges from 20% to 35% of the original
principal balance. Before each foreclosure sale, the VA determines whether to
bid by comparing the estimated net sale proceeds to the outstanding principal
balance and the servicer's accumulated reimbursable costs and fees. If this
amount is a loss and exceeds the guaranteed amount, the VA typically issues a
no-bid and pays the servicer the guaranteed amount. Whenever a no-bid is issued,
the servicer absorbs the loss, if any, in excess of the sum of the guaranteed
principal and the amounts recovered at the foreclosure sale. HLI's historical
loss experience on VA loans has generally been consistent with industry
experience.
In 1994 and 1995, HLI recorded provisions in excess of actual foreclosure
losses. Management believes that HLI has an adequate level of reserve based on
its servicing volume, portfolio composition, credit quality and historical loss
rates, as well as estimated future losses. For an analysis of changes in the
reserve for estimated servicing losses on investor-owned loans for each of the
three years ended December 31, 1995, see Note 4 of Notes to Consolidated
Financial Statements of HLI.
Real Estate Owned Expense
Real estate owned expense increased from $0.3 million in 1994 to $1.1
million in 1995, and decreased from $1.6 million in 1993 to $0.3 million in
1994. Real estate owned expense is incurred from foreclosed properties on which
HLI has taken title and includes declines in the value of the property, as well
as the incurrence of property holding and maintenance costs. The change in real
estate owned expense in 1995 was due primarily to an increase in the average
balance of real estate owned from $1.4 million in 1994 to $1.6 million in 1995.
The decrease from 1993 to 1994 was due to a decline in the average balance of
real estate owned from $3.4 million in 1993 to $1.4 million in 1994. As part of
the HLI Acquisition, BKB retained all real estate owned.
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<PAGE> 74
Other Expense
Other expense increased from $19.3 million to $21.9 million, or 13.3%, from
1994 to 1995 and decreased from $22.1 million to $19.3 million, or 12.4%, from
1993 to 1994. The increase in other expense from 1994 to 1995 included increases
of $1.1 million in advertising and public relations, $1.0 million in contracted
services, $0.9 million in software costs and $0.6 million in communication
expenses. These increases were partially offset by a $0.7 million reduction in
loan related expenses. The increase in advertising and public relations expense
was due to a $1.0 million major advertising campaign carried out during 1995 in
addition to normal advertising activity. Contracted services increased due to an
increase in bank service charges for loan payment processing, which increased
with the rise in HLI's servicing volume. Software costs increased as HLI
continued to expand and redesign its computer platform in order to deliver more
efficient and reliable service. The increase in communications expense was due
to higher telephone postage and delivery expenses resulting from higher loan
production levels.
The decline in other expense from 1993 to 1994 was principally due to a
$2.0 million increase in gains from the disposition of foreclosed property.
Gains and losses on the sale of foreclosed property are netted and included as a
component of other expense. Gains and losses on the disposition of foreclosed
property result from the difference between the amount received in satisfaction
of the borrower's obligation upon sale of the property and the amount at which
the property was recorded on HLI's books at the time of the sale. Gains and
losses on the disposition of real estate fluctuate based on regional and
national market conditions at the time each property is being marketed.
Provision for Income Taxes
HLI recorded a provision for income taxes of $2.5 million and $37.9 million
for 1994 and 1995, respectively, and an income tax benefit of $17.3 million in
1993. The effective income tax rate was 39.2%, 56.4% and 35.5% for 1995, 1994
and 1993, respectively. The difference between these rates and the statutory
federal tax rate was primarily due to state income taxes, net of federal tax
benefit, and the effect on deferred taxes of a change in the federal statutory
rate in 1993. The changes in the provisions for, and benefit from, income taxes
were the result of variances in HLI's pre-tax income and loss for each of the
years presented. For additional information regarding income taxes, refer to
Note 10 of Notes to Consolidated Financial Statements of HLI on F-47 and F-48.
Accounting Changes
Effective January 1, 1993, HLI elected to change its method of valuing
mortgage servicing rights from an undiscounted basis to a discounted basis to
conform its financial reporting to the regulatory accounting rules adopted by
bank regulators in 1993. HLI also adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" on January 1, 1993. On January
1, 1994, HLI changed its method of accounting for mortgage servicing fees from
the cash basis to the accrual basis. See Notes 2 and 10 of Notes to Consolidated
Financial Statements of HLI on F-40 and F-47 for further discussion of HLI's
accounting changes. See "-- Liquidity and Capital Resources -- New Accounting
Standard" for a discussion of Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights," which was adopted by HLI in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Overview
HLI's primary sources of cash are revenues earned from the servicing of
mortgage loans, sales of mortgage loans and servicing rights and borrowings
under HLI's warehouse line of credit. HLI has entered into a new credit facility
(see "-- Post-Acquisition Financing"). HomeSide anticipates that cash provided
by servicing and sales of mortgage loans and borrowings will be sufficient to
meet its liquidity needs and, accordingly, does not anticipate that sales of
servicing rights will be a significant component of its business strategy in the
future. HLI's primary uses of cash are to fund loan originations and purchases,
purchase bulk servicing rights, repay its warehouse line of credit and pay
general corporate expenses. HLI had a net increase (decrease) in cash of ($4.8
million), $0.3 million and ($0.8 million) in 1995, 1994 and 1993, respectively.
Operations
Net cash provided by (used in) operating activities was ($65.9 million) in
1995, $394.6 million in 1994, and ($110.2 million) in 1993. The decrease in cash
provided by operating activities from 1994 to 1995 was
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<PAGE> 75
attributable to cash needed to meet growth in loan origination volume coupled
with a reduction in proceeds on sales of mortgage loans. The increase in cash
provided by operating activities from 1993 to 1994 was due to a reduction in
loan demand during 1994, which diminished HLI cash needs for funding loan
production.
Investing
Cash used in investing activities was $125.7 million in 1995, $154.2
million in 1994 and $109.5 million in 1993. The decrease in cash used in
investing activities from 1994 to 1995 was comprised primarily of a $36.8
million increase in proceeds from risk management contracts and a $17.8 million
increase in proceeds from sales of mortgage servicing rights. These cash inflows
were partially offset by a $29.0 million increase in purchases of mortgage
servicing rights. The increase in proceeds from risk management contracts was a
result of a decline in interest rates during 1995 that increased the value of
HLI's risk management contracts and, accordingly, the proceeds received by HLI
upon settlement. The increase in proceeds from sales of mortgage servicing
rights was principally due to an increase in sales activity in 1995 as compared
to 1994. HLI sold servicing rights of $1.9 billion in 1995 as compared to $0.8
billion in 1994. The increase in cash used to purchase mortgage servicing rights
during 1995 was related to an increase in mortgage loans purchased through HLI's
warehouse channels as a result of declining interest rates that increased loan
production across the industry.
The increase in cash used in investing activities in 1994 as compared to
1993 was comprised of a $39.4 million increase in purchases of mortgage
servicing rights and a $16.3 million decrease in proceeds from risk management
contracts. The decreases in cash flow were partially mitigated by a $10.2
million increase in proceeds from the sale of mortgage servicing rights. The
increase in cash used to purchase mortgage servicing rights was part of HLI's
overall strategy to increase its servicing portfolio and benefit from economies
of scale. The decrease in proceeds from risk management contracts was a result
of an increase in interest rates during 1994 which negatively impacted the value
of the contracts. The increase in proceeds from the sale of mortgage servicing
rights from 1993 to 1994 was due to an improvement in the market for mortgage
servicing rights during 1994. The low interest rate environment in 1993
depressed the value of the mortgage servicing right market since loans were
being prepaid with a higher frequency.
Financing
Cash provided by (used in) financing activities was $186.8 million in 1995,
($240.2 million) in 1994 and $218.9 million in 1993. Prior to the HLI
Acquisition, the primary source and use of cash related to financing activities
was attributable to the line of credit with Bank of Boston. This line of credit
was used to fund the origination and purchase of mortgage loans until the loans
were sold to investors. The proceeds of such sales were typically used to pay
down the related warehouse debt with any excess retained by HLI. Maximum
borrowings under the line of credit were $1.25 billion. The higher level of
borrowings in 1995 and 1993 were indicative of higher loan production and
purchase volumes during these years as compared to 1994.
Impact of Inflation
Inflation affects HLI primarily through its effect on interest rates since
interest rates normally increase during periods of high inflation and decrease
during periods of low inflation. See "Risk Factors -- Impact of Changes in
Interest Rates; Results of Risk Management Activities".
New Accounting Standard
In May 1995, FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights." This Statement, among other
provisions, requires that the value of mortgage servicing rights associated with
mortgage loans originated by an entity be capitalized as assets, which results
in an increase in mortgage origination revenues. The value of originated
mortgage servicing rights is determined by allocating the total costs of the
mortgage loans between the loans and the mortgage servicing rights based on
their relative fair values. Also, the Statement requires that capitalized
servicing rights be evaluated for impairment based on the fair value of these
rights. For the purposes of determining impairment, mortgage servicing rights
that are capitalized after the adoption of this Statement are stratified based
on one or more of the predominant risk characteristics of the underlying loans.
Impairment is recognized through a valuation allowance for each impaired
stratum. HLI adopted this Statement effective January 1, 1996.
30
<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- HHI
FOR THE PERIOD APRIL 1, 1996 TO MAY 30, 1996
AND THREE MONTHS ENDED JUNE 30, 1995
GENERAL
HHI, based in Jacksonville, Florida, is the wholly-owned mortgage banking
subsidiary of Barnett and operates as a full-service mortgage banking company,
engaged in the origination, sale and servicing of first mortgage loans secured
by residential properties. On March 4, 1996, Barnett entered into an agreement
to sell HHI to the Parent. Under the terms of the sale, the Parent acquired
HHI's and its subsidiaries' servicing portfolio and servicing platform, its
proprietary mortgage servicing software, and Honolulu Mortgage Company
("Honolulu Mortgage"), a full service mortgage banking company in Honolulu,
Hawaii.
HHI acquired Loan America, a wholesale mortgage banking company with a $4.0
billion servicing portfolio in October 1994. Headquartered in Miami, Florida,
Loan America originates loans through brokers in twelve states. The acquisition
of Loan America represented HHI's first entry into the wholesale origination
business.
In February 1995, HHI acquired BancPLUS Financial Corporation ("BPFC"), a
full-service mortgage company with a $13.9 billion servicing portfolio.
Headquartered in San Antonio, Texas, BancPLUS Mortgage Corp. ("BancPLUS"), a
wholly-owned subsidiary of BPFC, was primarily a retail originator with
thirty-six branch offices in seventeen states. HHI's acquisition of BPFC also
included Honolulu Mortgage, with its $1.7 billion servicing portfolio.
Prior to HHI's acquisition of Loan America and BPFC, HHI originated
mortgage loans primarily through the retail banking offices of Barnett. Among
other things, the acquisitions were made as part of a strategy to: (i) increase
the volume of HHI's origination and servicing activities; (ii) obtain geographic
expansion and diversity; and (iii) acquire an expertise in managing retail and
wholesale origination activities outside of retail banking offices.
The BancPLUS and Loan America acquisitions were accounted for as purchases
and, accordingly, their results are only included in HHI's results since the
dates of their acquisitions.
On May 31, 1996, Barnett Banks, Inc. ("Barnett") sold certain of its
mortgage banking operations, primarily its servicing portfolio and proprietary
mortgage banking software systems to the Parent, as discussed above. Barnett
received cash and an ownership interest in the Parent. As a result of the
acquisition of HHI by the Parent, HHI ceased to originate loans as a separate
company and operations for periods subsequent to that date will be included in
the results of operations of the Company. Accordingly, statement of operations
data does not include periods subsequent to May 30, 1996. Comparative
information in the prior year is presented through June 30, 1995 because this
was the end of HHI's 1995 second quarter. Reasons for variances which are not
attributed solely to differences in the number of months in the periods
presented have been discussed where appropriate. Reasons for variances due to
differences in the number of months in the periods presented have been noted
where applicable.
RESULTS OF OPERATIONS
HHI reported a net loss of $4.0 million for the period April 1, 1996 to May
30, 1996 and a net loss of $3.4 million for the quarter ended June 30, 1995. The
period April 1, 1996 to May 30, 1996 loss was mainly attributable to servicing
hedging costs, while the second quarter 1995 loss was attributable to costs
associated with the BancPLUS acquisition.
Net Servicing Revenue
HHI's revenues are primarily earned from servicing mortgage loans for
investors. Servicing activities include collection of mortgage principal,
interest and escrow payments; remitting these payments to investors; and
maintaining records of loans and escrows. Servicing fees are typically expressed
as a percentage of UPB and are collected from the monthly remittances of the
borrower before being paid to the investor. Mortgage servicing income also
includes late charges for delinquent customer payments.
31
<PAGE> 77
The following table sets forth the composition of HHI's servicing
portfolio.
<TABLE>
<CAPTION>
AT MAY 30,
1996
----------
(DOLLARS
IN
MILLIONS)
<S> <C>
FHA/VA......................................................... $ 5,588
Conventional................................................... 27,494
--------
Total................................................ $ 33,082
========
</TABLE>
Net servicing revenue was $12.7 million for the period April 1, 1996 to May
30, 1996 and $16.7 million for the three months ended June 30, 1995. Mortgage
servicing fees are earned for servicing mortgage loans owned by investors. The
cost of acquiring the right to service mortgage loans originated by others is
capitalized and amortized as a reduction of servicing fee revenue over the
estimated servicing period. The increases in mortgage servicing fees and
amortization of mortgage servicing rights were primarily due to growth in the
servicing portfolio related to the BancPLUS acquisition. The average servicing
fee increased from 0.307% at June 30, 1995 to 0.337% at May 30, 1996.
At May 30, 1996, before the acquisition by the Parent, HHI serviced
approximately 440,000 loans with UPB of $33.1 billion, compared to approximately
446,000 loans with UPB of $33.1 billion at June 30, 1995 and approximately
243,000 loans with UPB of $18.4 billion at December 31, 1994. Growth in HHI's
servicing portfolio has been primarily generated from the acquisition of
BancPLUS.
Servicing Values
HHI's operating results can be affected by changes in the economic value of
its mortgage servicing portfolio due to increases in prepayment speeds, which
are primarily influenced by interest rates. When loans prepay faster than
anticipated, the estimated future cash flow HHI expected to receive from
servicing such loans is reduced. Since the value of the mortgage servicing
rights is based on the present value of the cash flows to be received over the
life of the loan, the value of the servicing portfolio declines as prepayments
increase.
During second quarter 1995, hedging of the mortgage servicing rights value
was handled by Barnett as part of its overall risk management program. During
this period, no hedges were specifically implemented for risk management of
mortgage servicing rights. During fourth quarter 1995, Barnett and HHI evaluated
the risks, benefits and costs related to servicing hedges and in December 1995
commenced a partial hedging program which continued into the second quarter of
1996. The results of HHI's hedging activities did not have a material effect on
its financial statements for the periods presented.
Secondary Marketing Gain/Loss
Gains or losses on the sales of loans result primarily from two factors.
First, HHI may make a loan to a borrower at a price (i.e., interest rate and
discount) which is higher or lower than its would receive if it immediately sold
the loan in the secondary market. HHI adjusts the pricing on its loans depending
on competitive pressure.
Second, gains or losses may result from changes in interest rates which
result in changes in the market value of the loans, or commitments to purchase
loans, from the time the price commitment is given to the borrower until the
time that the loan is sold to investors. HHI uses sophisticated modeling tools
to provide information to hedge this latter interest rate risk. HHI uses forward
delivery contracts for mortgage-backed securities and whole loan sales as
hedging instruments. There is close correlation of risk as the borrower's loan
is used to satisfy the forward delivery contract. HHI's secondary marketing
activities are generally negatively impacted during periods of high interest
rate volatility and periods when there is a significant overall change in the
direction of interest rates.
HHI had losses on the sale of loans of $3.4 million for the period April 1,
1996 to May 30, 1996, compared to gain on sales of loans of $1.0 million for the
three months ended June 30, 1995. The losses incurred during the period April 1,
1996 to May 30, 1996 were due to an increase in long-term interest rates, which
negatively impacted the market value of loans in HHI's pipeline, and competitive
pricing pressures.
Net Interest Revenue/Expense
HHI recorded net interest expense of $2.3 million and net interest revenue
of $2.2 million for the second quarter ended June 30, 1995 and the period April
1, 1996 to May 30, 1996, respectively. HHI's net interest
32
<PAGE> 78
results are derived from interest earned on warehouse loans originated by the
BancPLUS and Loan America branches, less interest expense incurred to fund such
loans. The interest expense, following the acquisition of BancPLUS on February
28, 1995, was incurred at a rate reduced by the benefit for the escrow balances
maintained in the Barnett banks for the servicing portfolio.
Net Mortgage Origination Revenue
HHI has built a multi-channel production network as part of its strategy to
become a national participant in the mortgage banking business. HHI maintains
several channels, including Barnett's retail bank franchise, a national retail
network obtained from BancPLUS, a national wholesale broker group obtained from
the Loan America traditional correspondent business and production from Honolulu
Mortgage. This varied production base is designed to provide flexibility,
allowing HHI to shift production focus to the most attractive source given
specific market conditions.
The following table sets forth HHI origination activity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE PERIOD APRIL 1, 1996
JUNE 30, 1995 TO MAY 30, 1996
------------------ ----------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Barnett bank branch retail................ $ 516 $418
BancPLUS retail(a)........................ 143 131
Loan America broker(a).................... 251 302
Honolulu Mortgage(a)...................... 76 59
Correspondent............................. 344 72
------ ----
Total Production..................... $1,330 $982
====== ====
</TABLE>
- ---------------
(a) Since date of acquisition by HHI.
Net mortgage origination revenue includes origination fees received from
borrowers, gains and losses from mortgage sales, and capitalized originated
mortgage servicing rights ("OMSR"). OMSR income results from the January 1, 1996
implementation of SFAS 122. The requirements of SFAS 122 are discussed in Note 3
to the Consolidated Financial Statements of HHI on F-34. Net mortgage
origination revenue was $4.5 million for the second quarter 1995 compared to net
mortgage origination expense of $1.7 million for the period April 1, 1996 to May
30, 1996. The decrease was attributable to a $10.2 million decline in gain on
sale of loans, offset by a $5.9 million increase in OMSR income. The decline in
gains on sales of loans, excess servicing gains and pricing subsidies was due to
an increase in loan origination and sales from the second quarter 1995 compared
to the period April 1, 1996 to May 30, 1996. This volume increase was due to
additional loan origination channels resulting from the acquisition of BancPLUS.
Salaries and Employee Benefits
Salaries and employee benefits decreased from $14.3 million during second
quarter 1995 to $10.4 million during the period April 1, 1996 to May 30, 1996.
The decline is due to the comparison of the two months data versus three months
data, which is a result of the sale of HHI to the Parent on May 31, 1996.
Occupancy and Equipment Expense
Occupancy and equipment expense decreased from $2.4 million to $1.6 million
from second quarter 1995 to the period April 1, 1996 to May 30, 1996. The
decline is due to the comparison of the two months data versus three months
data, which is a result of the sale of HHI to the Parent on May 31, 1996.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses decreased from $12.1 million to $6.8
million from second quarter 1995 to the period April 1, 1996 to May 30, 1996.
The decline was due to the comparison of the two months data versus three months
data, which was a result of the sale of HHI to the Parent on May 31, 1996.
PROVISION FOR INCOME TAXES
HHI's results of operations are included in Barnett's consolidated income
tax return. HHI's income tax provision and related asset or liability are
computed based on income tax rates as if HHI filed a separate income tax return.
Pursuant to a tax-sharing agreement with Barnett, HHI is reimbursed for the tax
effect of current operating losses utilized in the consolidated return.
33
<PAGE> 79
During second quarter 1995, HHI recorded a benefit for income taxes of $2.1
million compared to a tax benefit of $0.9 million for the period April 1, 1996
to May 30, 1996. For further information regarding the reconciliation between
statutory federal tax rate and the effective tax rate, refer to Note 4 of Notes
to Consolidated Financial Statements of HHI on F-64 and F-65 for the year ended
December 31, 1995.
THE PERIOD JANUARY 1, 1996 TO MAY 30, 1996 AND SIX MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS
During the six-month period ended June 30, 1995, HHI experienced
significant growth in loan servicing and production through its acquisition of
BancPLUS. From December 31, 1994 to May 30, 1996, the servicing portfolio
increased by 80% and production volume increased by 13% from the six months
ended June 30, 1995 to the period January 1, 1996 to May 30, 1996.
HHI reported a net loss of $8.3 million for the period January 1, 1996 to
May 30, 1996 and a net loss of $7.5 million for the six months ended June 30,
1995. The loss for the first five months of 1996 was mainly attributable to
servicing hedging costs, while the loss for the first six months of 1995 was
attributable to costs associated with the BancPLUS acquisition.
Net servicing revenue was $27.8 million for the first six months of 1995
compared to $27.0 million for the period January 1, 1996 to May 30, 1996.
Mortgage servicing fees are earned for servicing mortgage loans owned by
investors. The cost of acquiring the right to service mortgage loans originated
by others is capitalized and amortized as a reduction of servicing fee revenue
over the estimated servicing period. The increases in mortgage servicing fees
and amortization of mortgage servicing rights were primarily due to growth in
the servicing portfolio related to the BancPLUS acquisition. The average
servicing fee increased from 0.307% at June 30, 1995 to 0.337% at May 30, 1996.
Net Interest Revenue/Expense
HHI recorded net interest expense of $2.7 million and net interest revenue
of $4.6 million for the six months ended June 30, 1995 and the period January 1,
1996 to May 30, 1996, respectively. HHI's net interest results are derived from
interest earned on warehouse loans originated by the BancPLUS and Loan American
branches, less interest expense incurred to fund such loans. The interest
expense, following the acquisition of BancPLUS on February 28, 1995, was
incurred at a rate reduced by the benefit for the escrow balances maintained in
the Barnett banks for the servicing portfolio.
Net Mortgage Origination Revenue
The following table sets forth HHI's origination activity:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FOR THE PERIOD JANUARY 1,
JUNE 30, 1995 1996 TO MAY 30, 1996
------------- -------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Barnett bank branch retail........................ $1,053 $ 955
BancPLUS retail(a)................................ 335 323
Loan America broker(a)............................ 629 680
Honolulu Mortgage(a).............................. 159 142
Correspondent..................................... 710 438
------ ------
Total production........................ $2,886 $2,538
====== ======
</TABLE>
- ---------------
(a) Since date of acquisition by HHI.
Net mortgage origination revenue includes origination fees received from
borrowers, gains and losses from mortgage sales, and capitalized OMSR. OMSR
income results from the January 1, 1996 implementation of SFAS 122. The
requirements of SFAS 122 are discussed in Note 1 to the Consolidated Financial
Statements of HHI on F-62. Net mortgage origination revenue increased from $7.5
million to $7.8 million from the first six months of 1995 to the period January
1, 1996 to May 30, 1996. This volume increase was due to additional loan
origination volume resulting from the acquisition of BancPLUS.
Salaries and Employee Benefits
Salaries and employee benefits increased from $23.4 million during the
first six months of 1995 to $25.2 million during the period January 1, 1996 to
May 30, 1996. The salary and benefit increased was the result of
34
<PAGE> 80
an increase in loan origination activity from the first six months of 1995
versus the period January 1, 1996 to May 30, 1996. For the first six months of
1995, origination volume was $2,250 million versus $2,538 million for the period
January 1, 1996 to May 30, 1996.
Occupancy and Equipment Expense
Occupancy and equipment expense decreased from $3.9 million to $3.7 million
for the first six months of 1995 compared to the period January 1, 1996 to May
30, 1996.
General and Administrative Expense
General and administrative expenses increased from $20.4 million to $20.7
from the first six months of 1995 to the period January 1, 1996 to May 30, 1996.
Provision for Income Taxes
During the first six months of 1995, HHI recorded a benefit for income
taxes of $2.9 million compared to a tax benefit of $2.5 million for the period
January 1, 1996 to May 30, 1996. For further information regarding the
reconciliation between the statutory federal tax rate and the effective tax
rate, refer to Note 4 of Notes to Consolidated Financial Statements of HHI on
F-64 for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Overview
HHI's primary sources of cash are revenues earned from the servicing of
mortgage loans, sales of mortgage loans and servicing rights, which historically
have offered a high measure of liquidity, and borrowings under HHI's line of
credit. HHI's primary uses of cash are to fund loan originations and purchases,
repay its lines of credit and pay general corporate expenses. HHI had a net
increase in cash of $9.6 million for the six months ended June 30, 1995 and a
net decrease in cash of $3.8 million for the period January 1, 1996 to May 30,
1996.
Operations
Net cash used in operating activities was $57.0 million for the six months
ended June 30, 1995 and net cash provided by operating activities was $211.0
million for the period January 1, 1996 to May 30, 1996. The cash used in
operating activities during the first six months of 1995 was attributable to
cash needed to meet growth in loan origination volume which related to the
acquisition of BancPLUS in February 1995. The cash provided from operating
activities for the period January 1, 1996 to May 30, 1996 was attributable to an
increase in loan sales.
Investing
Cash used in investing activities was $171.5 million the first six months
of 1995, primarily due to the acquisition of BancPLUS, and $9.3 million for the
period January 1, 1996 to May 30, 1996, primarily due to an increased servicing
portfolio.
Financing
Cash provided by financing activities was $238.2 million during the first
six months of 1995 compared to cash used in financing activities of $205.4
million for the period January 1, 1996 to May 30, 1996. The primary sources and
uses of cash related to financing activities were the lines of credit with
Barnett and its affiliates, to which some of HHI's assets were pledged as
collateral. These lines of credit were used to fund the origination and purchase
of mortgage loans until the loans were sold to investors. The proceeds of such
sales were typically used to pay down the related warehouse debt with any excess
retained by HHI. There was a net increase of $70.8 million in the lines of
credit for the six months ended June 30, 1995. Additionally, cash provided as
capital contributions from Barnett were $167.3 million for the six months ended
June 30, 1995 and $28.2 million for the period January 1, 1996 to May 30, 1996,
respectively. The 1995 contribution was to fund the acquisition of BancPLUS and
the 1996 contribution was primarily to fund servicing hedging activities.
THREE YEARS ENDED DECEMBER 31, 1995
GENERAL
Prior to May 31, 1996, HHI was a wholly-owned mortgage banking subsidiary
of Barnett and a full-service mortgage banking company, engaged in the
origination, sale and servicing of first mortgage loans secured by residential
properties. On March 4, 1996, Barnett entered into an agreement to sell HHI to
the
35
<PAGE> 81
Company. At the closing of the HHI Acquisition, the Company acquired HHI's and
its subsidiaries' $33.4 billion servicing portfolio and servicing platform, its
proprietary mortgage servicing software and Honolulu Mortgage, a full-service
mortgage banking company in Honolulu, Hawaii.
HHI acquired Loan America, a wholesale mortgage banking company with a $4.0
billion servicing portfolio in October 1994. Headquartered in Miami, Florida,
Loan America originated loans through brokers in twelve states. The acquisition
of Loan America represented HHI's first entry into the wholesale origination
business.
In February 1995, HHI acquired BPFC, a full-service mortgage company with a
$13.9 billion servicing portfolio. Headquartered in San Antonio, Texas,
BancPLUS, a wholly-owned subsidiary of BPFC, was primarily a retail originator
with thirty-six branch offices in seventeen states. HHI's acquisition of BPFC
also included Honolulu Mortgage, with its $1.7 billion servicing portfolio.
The BancPLUS and Loan America acquisitions were accounted for as purchases
and, accordingly, their results are only included in HHI's results since the
dates of their acquisitions. On May 31, 1996, BPFC was merged into BancPLUS,
which in turn was merged, together with Loan America, into HLI.
In connection with the HHI Acquisition, HHI transferred all of its
servicing rights to HLI, except for the servicing of GNMA loans, which it
retained. HomeSide currently believes that HHI will not in the future acquire
any additional servicing rights.
RESULTS OF OPERATIONS
For purposes of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- HHI" the term "HHI" means HHI and its
subsidiaries prior to the closing of the HHI Acquisition.
During 1993, 1994 and 1995, HHI experienced significant growth through its
acquisitions of BancPLUS and Loan America. From 1993 to 1995, the servicing
portfolio increased by 155% and production volumes increased by 72%.
HHI reported a net loss of $20.4 million in 1995, a net loss of $2.1
million in 1994 and net income of $0.1 million in 1993. The net loss in 1995 was
mainly attributable to costs associated with the BancPLUS acquisition and
secondary market losses, partially offset by a $9.1 million gain on the sales of
servicing rights.
Net Servicing Revenue
HHI's revenues were primarily earned from servicing mortgage loans for
investors. Servicing activities include collection of mortgage principal,
interest and escrow payments; remitting these payments to investors; and
maintaining records of loans and escrows. Servicing fees are typically expressed
as a percentage of UPB and are collected from the monthly remittances of the
borrower before being paid to the investor. Mortgage servicing income also
includes late charges assessed for delinquent customer payments.
The following table sets forth the composition of HHI's servicing
portfolio:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
FHA/VA....................................... $ 1,032 $ 1,082 $ 6,023
Conventional................................. 12,053 17,329 27,388
------- ------- -------
Total.............................. $13,085 $18,411 $33,411
======= ======= =======
</TABLE>
Net servicing revenue increased from $29.4 million to $69.4 million, or
136% from 1994 to 1995. This increase was comprised of a $9.1 million increase
in gain on the sales of servicing and a $61.4 million growth in mortgage
servicing fees, offset by a $30.5 million increase in amortization of mortgage
servicing rights. Mortgage servicing fees are earned for servicing mortgage
loans owned by investors. The cost of acquiring the right to service mortgage
loans originated by others is capitalized and amortized as a reduction of
servicing fee revenue over the estimated servicing period. The increases in
mortgage servicing fees and amortization of mortgage servicing rights were
primarily due to growth in HHI's servicing portfolio during 1995. The average
servicing fee increased from 0.259% in 1993 to 0.261% in 1994 and to 0.277% in
1995.
36
<PAGE> 82
At December 31, 1995, HHI serviced approximately 446,000 loans with UPB of
$33.4 billion, compared to approximately 243,000 loans with UPB of $18.4 billion
at December 31, 1994. Growth in HHI's servicing portfolio was primarily
generated from the acquisition of BancPLUS.
The 1995 gain on the sales of servicing is a result of two servicing sales
totalling $1.2 billion of UPB. There were no servicing sale gains during 1994 or
1993. HHI's decision to sell mortgage servicing rights depended on a variety of
factors, including the available markets and current prices for such servicing
rights and the working capital requirements of HHI.
Net servicing revenue increased from $27.3 million in 1993 to $29.4 million
in 1994, or 8%. This increase was partially due to the acquisition of Loan
America and its $4.0 billion servicing portfolio in October 1994. At December
31, 1993, HHI serviced approximately 193,000 loans with UPB of $13.1 billion.
Risk Management Activities
HHI has actively monitored and managed risk of loss related to the value of
its mortgage servicing portfolio and its origination and subsequent sale of
loans into the secondary market.
Servicing Values
HHI's operating results have been affected by changes in the economic value
of its mortgage servicing portfolio due to increases in prepayment speeds, which
are primarily influenced by interest rates. When loans prepay faster than
anticipated, the estimated cash flow HHI expected to receive from servicing such
loans is reduced. Since the value of the mortgage servicing rights is based on
the present value of the cash flows to be received over the life of the loan,
the value of the servicing portfolio declines as prepayments increase.
During 1993, 1994 and most of 1995, hedging of the mortgage servicing
rights value was handled by Barnett as part of its overall risk management
program. During this period, no hedges were specifically implemented for risk
management of mortgage servicing rights. During 1995, Barnett and HHI evaluated
the risks, benefits and costs related to servicing hedges and in December 1995
commenced a partial hedging program. While the market value of HHI's servicing
portfolio declined, such decline was not reflected in HHI's financial results
because its market value exceeded its book value.
Secondary Marketing Gain/Loss
Gains or losses on the sales of loans result primarily from two factors.
First, HHI may have made a loan to a borrower at a price (i.e., interest rate
and discount) which is higher or lower than it would have received if it
immediately sold the loan in the secondary market. HHI adjusted the pricing on
its loans depending on competitive pressure. Generally, prior to the acquisition
of Loan America at the end of 1994 and BancPLUS in the beginning of 1995, HHI
priced its loans based on interest rate levels prevalent in the secondary
market. After the acquisition of those companies, HHI began aggressively
competing in national markets where pricing below the secondary market often
occurred, especially for loans sourced through wholesale brokers. Price
competition intensified in 1994 due to the sharp decline in origination volumes
and industry overcapacity and aggressive price pressure continued through 1995.
Second, gains or losses may result from changes in interest rates which
result in changes in the market value of the loans, or commitments to purchase
loans, from the time the price commitment is given to the borrower until the
time that the loan is sold to investors. HHI has employed sophisticated
modelling tools to provide information to hedge this latter interest rate risk.
HHI has employed forward delivery contracts for mortgage-backed securities and
whole loan sales as hedging instruments. There is close correlation of risk as
the borrower's loan was used to satisfy the forward delivery contract. HHI's
secondary marketing activities have been generally negatively impacted during
periods of high interest rate volatility and periods when there is a significant
overall change in the direction of interest rates, both of which occurred in
1994 and 1995. Additionally, during the period following the integration of
BancPLUS' secondary marketing operations during 1995, the magnitude of the
conversion task caused a temporary operational delay in selling borrowers' loans
into the secondary market, reducing the normally close correlation of loans to
forward delivery contracts. This condition had an additional temporary negative
impact on results from sales of mortgages.
Net Interest Revenue/Expense
In 1995, HHI recorded net interest revenue of $6.8 million, an increase
from net interest expense of $1.5 million in 1994. The net interest revenue was
mainly derived from interest earned on warehouse loans
37
<PAGE> 83
originated by the BancPLUS and Loan America branches, less interest expense
incurred to fund such loans. The interest expense for 1995 was incurred at a
rate reduced by the benefit for the escrow balances maintained in the Barnett
banks for the servicing portfolio. Prior to 1995, when the primary origination
source was the Barnett bank branches, HHI's net interest revenue was comprised
of interest income on a small portfolio of mortgage loans that HHI held for
investment purposes, offset by interest expense on a line of credit from Barnett
to fund servicing acquisitions and servicing advances since Barnett banks held
loans until they were sold by HHI.
Net Mortgage Origination Revenue
HHI has built a multi-channel production network as part of its strategy to
become a national participant in the mortgage banking business. Until the HHI
Acquisition, HHI maintained several channels, including Barnett's retail bank
franchise, a national retail network obtained from BancPLUS, a national
wholesale broker group obtained from the Loan America, traditional correspondent
business and production from Honolulu Mortgage. This varied production base was
designed to provide flexibility, allowing HHI to shift production focus to the
most attractive source given specific market conditions. The following table
sets forth HHI's origination activity:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Barnett bank branch retail...................... $3,360 $2,559 $1,932
BancPLUS retail(a).............................. -- -- 606
Loan America broker(a).......................... -- 401 1,386
Honolulu Mortgage(a)............................ -- -- 244
Correspondent................................... -- 450 1,599
------ ------ ------
Total production........................... $3,360 $3,410 $5,767
====== ====== ======
</TABLE>
- ---------------
(a) Since date of acquisition by HHI.
Net mortgage origination revenue includes origination fees received from
borrowers and gains and losses from sales of mortgage loans. Net mortgage
origination revenue decreased from $4.0 million to $3.2 million, or 20% from
1994 to 1995. The decrease was comprised of a $14.6 million decrease in gains on
sales of loans, offset by a $13.8 million increase in loan origination fees. The
decline in gains on sales of loans, excess servicing gains and pricing subsidies
was due to an increase in loan originations and sales over 1994. This volume
increase was driven by the acquisitions of BancPLUS and Loan America. Prior to
October 1994, the primary source of loan originations was the Barnett bank
retail network, and related origination fees were recognized by such banks. The
BancPLUS acquisition in February 1995 resulted in HHI collecting and recording
the origination fee income for loans originated through these channels. Net
mortgage origination revenue decreased from $6.0 million to $4.0 million, or
33%, from 1993 to 1994. The acquisition of Loan America in late 1994 resulted in
a $3.0 million increase in origination fees from 1993; however, this was offset
by a $5.0 million decrease in gain on the sale of loans.
Salaries and Employee Benefits
Salaries and employee benefits increased from $17.5 million in 1994 to
$53.1 million in 1995 and increased from $13.9 million in 1993 to $17.5 million
in 1994. The salary and benefit increases were the result of additional
employees assumed in the 1994 Loan America and 1995 BancPLUS acquisitions. Total
employee headcount grew from 464 FTE employees at December 31, 1993 to 555 FTE
employees at December 31, 1994 to 1,341 FTE employees at December 31, 1995. The
increase in the 1995 headcount was net of approximately 200 job eliminations
resulting from the consolidation of the administrative and operational functions
of the three mortgage companies that occurred throughout the year.
Occupancy and Equipment Expense
Occupancy and equipment expense increased from $2.7 million in 1994 to $6.0
million in 1995 due to the increases in rental and depreciation expense related
to assets and production offices acquired in the acquisition of BancPLUS in
February 1995.
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Occupancy and equipment expense increased from $1.8 million in 1993 to $2.7
million in 1994 due to the increases in rental and depreciation expense related
to assets and production offices acquired in the acquisition of Loan America in
October 1994.
General and Administrative Expense
General and administrative expenses increased from $14.9 million in 1994 to
$41.8 million in 1995, and increased from $12.4 million in 1993 to $14.9 million
in 1994. The increases in both 1995 and 1994 were largely a result of the
acquisition of Loan America and BancPLUS.
Provision for Income Taxes
HHI's results of operations are included in Barnett's consolidated income
tax return. HHI's income tax provision and related asset or liability are
computed based on income tax rates as if HHI filed a separate income tax return.
Pursuant to a tax-sharing agreement with Barnett, HHI is reimbursed for the tax
effect of current operating losses utilized in the consolidated return.
In 1995, HHI recorded a benefit for income taxes of $9.6 million compared
to a tax benefit of $0.5 million for 1994. The increased benefit was
attributable to the significantly higher operating loss reported in 1995.
Comparatively, a tax provision of $0.1 million was recorded in 1993 due to the
reported $0.2 million net income before income taxes. For additional information
regarding the reconciliation between the statutory federal tax rate and the
effective tax rate, refer to Note 4 of Notes to Consolidated Financial
Statements of HHI on F-64.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Prior to the HHI Acquisition, HHI's primary sources of cash were revenues
earned from the servicing of mortgage loans, sales of mortgage loans and
servicing rights, which historically have offered a high measure of liquidity,
and borrowings under HHI's lines of credit. Prior to the HHI Acquisition, HHI's
primary uses of cash are to fund loan originations and purchases, repay its
lines of credit and pay general corporate expenses. HHI had a net increase of
cash of $11.1 million and $2.4 million in 1995 and 1994, respectively.
Operations
Net cash used in operating activities was $185.5 million in 1995, $39.0
million in 1994 and $6.3 million in 1993. The increase in cash used in operating
activities from 1994 to 1995 was attributable to cash needed to meet growth in
loan origination volume which was related to the acquisition of BancPLUS, a full
year impact of the October 1994 acquisition of Loan America, and increased
correspondent business. The $32.7 million increase from 1993 to 1994 was
similarly attributable to increased loan origination volume from Loan America in
the fourth quarter of 1994 and the first time entry into the correspondent
business.
Investing
Cash used in investing activities was $182.3 million in 1995, $83.3 million
in 1994 and $36.3 million in 1993. The increase in cash used is primarily due to
the cost of the acquisitions of BancPLUS in 1995 and Loan America in 1994. The
increase in cash used to purchase BancPLUS and Loan America was part of HHI's
overall strategy to increase its servicing portfolio and nationwide loan
originations.
Financing
Cash provided by financing activities was $378.9 million in 1995, $124.8
million in 1994 and $43.0 million in 1993. Prior to the HHI Acquisition, the
primary source and use of cash related to financing activities was attributable
to the lines of credit with Barnett and its affiliates. The net increase in the
lines of credit with Barnett was $211.7 million in 1995, $65.0 million in 1994,
and $43.0 million in 1993. The higher level of borrowings in 1995 and 1994 are
indicative of increasingly higher loan production and purchase volumes during
these years.
Additionally, cash provided as capital contributions from Barnett increased
from $0 in 1993 to $59.8 million in 1994 and $167.2 in 1995. These contributions
were provided primarily for the acquisitions of BancPLUS in 1995 and Loan
America in 1994.
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Impact of Inflation
Inflation has affected HHI primarily through its effect on interest rates
since interest rates normally increase during periods of high inflation and
decrease during periods of low inflation. See "Risk Factors -- Impact of Changes
in Interest Rates; Results of Risk Management Activities".
New Accounting Standard
In May 1995, FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights." This Statement, among other
provisions, requires that the value of mortgage servicing rights associated with
mortgage loans originated by an entity be capitalized as assets, which results
in an increase in mortgage origination revenues. The value of originated
mortgage servicing rights is determined by allocating the total costs of the
mortgage loans between the loans and the mortgage servicing rights based on
their relative fair values. Also, the Statement requires that capitalized
servicing rights be evaluated for impairment based on the fair value of these
rights. For purposes of determining impairment, mortgage servicing rights that
are capitalized after the adoption of this Statement are stratified based on one
or more of the predominant risk characteristics of the underlying loans.
Impairment is recognized through a valuation allowance for each impaired
stratum. HHI adopted this Statement effective January 1, 1996. The actual effect
of implementing this Statement on HHI's financial position and results of
operations will depend on factors determined at the end of a reporting period,
including the amount and mix of originated and purchased production, the level
of interest rates and market estimates of future prepayment rates.
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INDUSTRY OVERVIEW
MORTGAGE MARKET
Mortgage bankers operate in the second largest debt market in the world,
which is exceeded only by the United States Treasury market. One to four family
residential mortgage debt in the United States grew to over $3.6 trillion in
1995 from $1.7 trillion in 1985, approximately an 8% compound annual growth
rate. Management believes that the industry category of one-to-four family
residential mortgage debt is relevant to HomeSide as that is the industry
category on which substantially all of HomeSide's business is based.
Over the past five years mortgage bankers have emerged as the dominant
players in the United States' mortgage origination and servicing business.
Mortgage bankers held market shares of 55% and 41%, respectively, of the United
States' residential mortgage origination and servicing markets in 1995, up from
35% and 37% in 1990. The bulk of the remaining origination and servicing market
share is held by commercial banks and thrifts. The mortgage bankers' market
share improvement began in the late 1980s and early 1990s when the thrift
industry, historically the largest provider of residential mortgage loans,
experienced serious financial difficulties. Mortgage bankers expanded market
share not only by supplanting thrifts as the primary mortgage originators and
servicers in the marketplace but also by purchasing the mortgage banking
operations and assets of certain of these entities. Mortgage bankers gained
additional momentum and increased their market share during the decline in
interest rates in the early 1990s.
Although mortgage loan demand is affected by a number of factors, including
economic conditions, demographics and consumer confidence, it is most heavily
influenced by interest rates and correlates inversely with interest rate
movements. When mortgage rates dropped below 10% in 1990, mortgagors began to
seek mortgages at lower interest rates, resulting in a growing refinancing boom
that lasted through 1993.
TOTAL RESIDENTIAL MORTGAGE ORIGINATIONS
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE(B)
-----------------------------
TOTAL PURCHASE REFINANCING FIXED ADJUSTABLE
ORIGINATIONS(A) (% OF TOTAL) (% OF TOTAL) RATE(B)(C)(E) RATE(B)(D)(E)
--------------------- ------------ -------------- ------------- --------------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C>
1985...................... $290 82% 18% 12.42% 10.04%
1986...................... 499 68 32 10.18 8.42
1987...................... 507 71 29 10.20 7.82
1988...................... 446 82 18 10.33 7.90
1989...................... 453 81 19 10.32 8.80
1990...................... 458 87 13 10.13 8.36
1991...................... 562 70 30 9.25 7.10
1992...................... 894 52 48 8.40 5.63
1993...................... 1,020 45 55 7.33 4.59
1994...................... 769 68 32 8.36 5.33
1995...................... 636 75 25 N/A N/A
</TABLE>
- ---------------
(a) Source: Fannie Mae
(b) Sources: Board of Governors of the Federal Reserve System; FHLMC; Federal
Home Loan Bank of San Francisco.
(c) 30-year conventional contract loan rate with 20% down payment.
(d) 1-year Treasury-indexed conventional contract loan rate with 20% down
payment.
(e) Figures are annual averages of monthly data.
SECONDARY MORTGAGE MARKETS
The secondary mortgage market and its evolution have been significantly
influenced by two government-sponsored enterprises, Fannie Mae and FHLMC, and
one government agency, GNMA (collectively, the "Agencies"). Through these
entities, the United States government provides support and liquidity to the
market for residential mortgage debt.
Mortgage originators sell their loans directly to Fannie Mae and FHLMC
either as whole loans or, more typically, as pools of loans used to
collateralize mortgage-backed securities ("MBS") issued or guaranteed by these
entities. Similarly, the originators can issue MBS collateralized by pools of
loans that are guaranteed by GNMA. In order to effect these sales or obtain
these guarantees, the originator must underwrite its loans to
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conform ("conforming loans") with standards established by Fannie Mae or FHLMC
or by the FHA or VA in the case of GNMA. All loans other than FHA and VA loans
("government loans") are considered conventional loans. Loans with principal
balances exceeding Agency guidelines ("jumbo loans"), currently in excess of
$214,600, are sold to private investors or aggregated into pools and sold as
MBS.
The role of the Agencies has grown substantially over the past ten years.
In 1994, Fannie Mae, FHLMC, and GNMA mortgage-backed securities accounted for,
in the aggregate, $1.4 trillion, or 42.0% of total residential mortgage debt
outstanding, approximately a fivefold increase from $287 billion ten years
earlier. The mortgage banking industry relies heavily on these Agencies to
provide liquidity.
There are a number of other participants in the market that primarily
purchase MBS. These participants include institutional investors such as life
insurance companies, pension funds and mutual funds. More recently, investors
that purchase pools of loans to collateralize MBS issued in their own name
("private investor securities") have entered the market. The development of the
private investor securities market has provided mortgage bankers the liquidity
essential to effect the sale of the loans the mortgage banker originates that do
not conform ("non-conforming") to Agency guidelines.
MORTGAGE BANKING MARKET CHARACTERISTICS
The mortgage banking market is highly fragmented. Despite the market share
growth of the industry as a whole, no single company controls or dominates the
market. In 1995 the largest originator represented 5.2% of the market and the
largest servicer represented 3.7%, while the top 25 originators and servicers
represented 38.1% and 39.1% of their markets, respectively.
TOP 10 ORIGINATORS AND SERVICERS
(DOLLARS IN BILLIONS)
<TABLE>
<C> <S> <C> <C> <C> <C>
1995 ORIGINATIONS SERVICING PORTFOLIO AT DECEMBER 31, 1995
1 Norwest Mortgage................. $ 34.2 1 Countrywide Funding.............. $ 134.0
2 Countrywide Funding.............. 31.5 2 General Electric Mortgage........ 109.5
3 Prudential Home Mortgage......... 15.7 3 Norwest Mortgage................. 107.4
4 Fleet Mortgage................... 14.9 4 Fleet Mortgage................... 105.5
5 Chase Manhattan Mortgage......... 13.9 5 Prudential Home Mortgage......... 81.8
6 Chemical Mortgage................ 13.3 6 NationsBank...................... 81.4
7 NationsBank...................... 11.0 7 Bank of America.................. 63.1
8 Bank of America.................. 10.3 8 Home Savings of America.......... 60.7
9 BancBoston Mortgage.............. 8.9 9 Chase Manhattan Mortgage......... 59.4
10 North American Mortgage.......... 7.6 10 Chemical Mortgage................ 57.2
</TABLE>
- ---------------
Source: National Mortgage News.
Mortgage bankers operate in a highly competitive market. The underwriting
guidelines and servicing requirements set by the participants in the secondary
markets are standardized. As a result, mortgage banking products (i.e., mortgage
loans and the servicing of those loans) have become difficult to differentiate.
Therefore, mortgage bankers compete primarily on the basis of price or service,
making effective cost management essential.
Mortgage bankers generally seek to develop cost efficiencies in one of two
ways: economies of scale or specialization. Large full-service national or
regional mortgage bankers have sought economies of scale through an emphasis on
wholesale originations, the introduction of automated processing systems and
expansion through acquisition. Smaller companies frequently identify and pursue
a particular expertise or customer base in an attempt to create a market niche.
RECENT TRENDS
The introduction of significant technological improvements to the mortgage
banking industry began in the mid 1980s. From the use of laptop computers for
originations to the electronic scanning of loan documents, technological
advances have allowed mortgage bankers to accommodate higher volumes of
business. This trend has continued, contributing to the consolidation in
mortgage banking. The automation of many functions
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in mortgage banking, especially those related to servicing, has reduced costs
significantly for industry participants.
Just as declining interest rates contributed to the growth of the mortgage
bankers' role in the early 1990s, rising interest rates in 1994 caused a
reduction in overall demand for mortgage loans, particularly refinancings. Many
mortgage bankers had expanded their operations in response to the increased
refinancing activities of 1992 and 1993. The contraction of the refinancing
demand in 1994 created substantial excess capacity in the industry, resulting in
further industry consolidation.
Many mortgage bankers that were not low cost, high volume producers or did
not operate in a low cost specialized field experienced earnings declines during
this period, causing many to exit the business or to be acquired. Surviving cost
effective firms purchased servicing portfolios or other companies to expand
their servicing economies of scale, while others acquired market niche
operations. As evidence of this consolidation, the top 25 mortgage loan
servicers increased their market share from 20.7% in 1990 to 39.1% in 1995.
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BUSINESS
HOMESIDE
HomeSide is one of the largest full-service residential mortgage banking
companies in the United States. HomeSide's strategy emphasizes variable cost
mortgage origination and low cost servicing. On a combined basis HomeSide's
origination volume and servicing portfolio would have been $14.7 billion and
$73.9 billion, respectively, for and as of the year ended December 31, 1995,
ranking HomeSide as the 5th largest originator and 7th largest servicer in the
United States for 1995 based on data published by National Mortgage News. For
and as of the nine months ended November 30, 1996, HomeSide's loan originations
and acquisitions were $18.9 billion and its servicing portfolio was $87.7
billion.
The residential mortgage market totaled over $3.6 trillion in 1995 and is
the second largest debt market in the world, exceeded only by the United States
Treasury market. The residential mortgage market has grown at a compound annual
rate of approximately 8% since 1985. HomeSide competes in a mortgage banking
market which is highly fragmented with no single company controlling or
dominating the market. In 1995 the largest originator represented 5.2% of the
market and the largest servicer represented 3.7%, while the top 25 originators
and servicers represented 38.1% and 39.1% of their markets, respectively.
Residential mortgage lenders compete primarily on the basis of loan pricing and
service, making effective cost management essential. The industry has
experienced rapid consolidation which has been accelerated by the introduction
of significant technology improvements and the economies of scale present in
mortgage servicing. The top 25 mortgage loan servicers have increased their
aggregate market share from 20.7% in 1990 to 39.1% in 1995.
HomeSide's business strategy is to increase the volume of its loan
originations and the size of its servicing portfolio while continuing to improve
operating efficiencies. In originating mortgages, HomeSide focuses on variable
cost channels of production, including correspondent, broker, consumer direct,
affinity, and co-issue sources. HomeSide pursues strategic relationships such as
its existing 5-year agreements to acquire residential mortgage loans from BKB
and Barnett production sources, which, for the period May 31, 1996 through
November 30, 1996, represented 19.5% of HomeSide's loan production. Management
believes that these variable cost channels of production deliver consistent
origination opportunities for HomeSide without the fixed cost investment
associated with traditional retail mortgage branch networks. HomeSide believes
that its ongoing investment in technology will further enhance and expand
existing processing capabilities and improve its efficiency. Based on
independent surveys of direct cost per loan and loans serviced per employee,
management believes that HomeSide has been one of the industry's most efficient
mortgage servicers.
HomeSide plans to build its core operations through (i) improved economies
of scale in servicing costs; (ii) increased productivity using proprietary
technology; and (iii) expanded and diversified variable cost origination
channels. In addition, HomeSide intends to pursue additional loan portfolio
acquisitions and strategic origination relationships similar to the existing BKB
and Barnett arrangements.
HomeSide's business activities consist primarily of:
- Mortgage production: origination and purchase of residential single
family mortgage loans through multiple channels including
correspondents, strategic partners (BKB and Barnett), mortgage
brokers, co-issue partners, direct consumer telemarketing and affinity
programs;
- Servicing: administration, collection and remittance of monthly
mortgage principal and interest payments, collection and payment of
property taxes and insurance premiums and management of certain loan
default activities;
- Secondary marketing: sale of residential single family mortgage loans
as pools underlying mortgage-backed securities guaranteed or issued by
governmental or quasi-governmental agencies or as whole loans or
private securities to investors; and
- Risk management: management of a program designed primarily to
protect the economic performance of the servicing portfolio that could
otherwise be adversely affected by loan prepayments due to declines in
interest rates.
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PRODUCTION
HomeSide participates in several origination channels, with a focus on
wholesale originations. Since the HLI Acquisition, wholesale channels
(correspondent, co-issue and broker) have represented more than 95% of
HomeSide's total production. No single source within the correspondent or broker
channels accounted for more than 2% of total production during the period March
16, 1996 to November 30, 1996. HomeSide's other origination channels include
telemarketing, affinity programs and retail branches. HomeSide also purchases
servicing rights in bulk from time to time. This multi-channel production base
provides access to and flexibility among production channels in a wide variety
of market and economic conditions. The table below details production by
HomeSide's origination channels:
RESIDENTIAL LOAN PRODUCTION BY CHANNEL
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE FOR THE THREE FOR THE PERIOD
MARCH 16, 1996 MONTHS ENDED MONTHS ENDED MARCH 16, 1996
TO MAY 31, 1996 (B) AUGUST 31, 1996 NOVEMBER 30, 1996 TO NOVEMBER 30, 1996
------------------- --------------- ----------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Wholesale:
Correspondent (includes
volumes purchased from
BKB and Barnett)...... $1,893 $2,950 $3,249 $ 8,092
Co-issue(a).............. 1,419 2,208 1,985 5,612
Broker................... 220 155 168 543
----- ----- ------ -------
Total wholesale....... 3,532 5,313 5,402 14,247
Direct..................... 248 179 139 566
----- ----- ------ -------
Total production...... 3,780 5,492 5,541 14,813
Bulk acquisitions(a)....... -- 4,073 -- 4,073
----- ----- ------ -------
Total production and
acquisitions........ $3,780 $9,565 $5,541 $ 18,886
====== ====== ====== =======
</TABLE>
- ---------------
(a) Represents the acquisition of servicing rights, not the underlying loans.
Amounts represent the UPB of mortgage debt to which the acquired servicing
rights relate.
(b) The Parent acquired HHI, and transferred all the assets and liabilities of
HHI, except for certain servicing rights, to the Issuer, on May 31, 1996 and
therefore HHI's loan production is not included in these amounts. During the
three months ended May 31, 1996, HHI's loan production totaled $1.5 billion.
HomeSide competes nationwide by offering a wide variety of mortgage
products designed to respond to consumer needs and tailored to address market
competition. HomeSide is primarily an originator of fixed rate 15- and 30-year
mortgage loans, which collectively represented 78% of the total production in
the period March 16, 1996 to November 30, 1996. HomeSide also offers other
products, such as ARMs and balloon and jumbo mortgages.
HomeSide's national loan production operation has resulted in
geographically diverse originations, enabling HomeSide to diversify its risk
across many markets in the United States. HomeSide's largest markets by state in
the period ended November 30, 1996 were California (17.5% of UPB of production),
Florida (9.1%), Texas (7.5%), Georgia (5.7%), and Maryland (5.5%).
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of homes,
although refinancings tend to be less seasonal and more closely related to
changes in interest rates. Sales and resales of homes typically peak during the
spring and summer seasons and decline to lower levels from mid-November through
February. In addition, delinquency rates typically rise in the winter months,
which results in higher servicing costs. However, late charge income has
historically been sufficient to offset such incremental expenses.
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<PAGE> 91
HomeSide's production strategy is to maintain and improve its reputation as
one of the largest, most cost effective originators of mortgage loans
nationwide. HomeSide pursues this strategy through an emphasis on wholesale and
centralized direct production, the use of contract and delegated underwriters, a
high degree of automation in its processing and direct originations and quality
control. HomeSide plans to expand production through its low cost wholesale and
direct channels and to continue to streamline its production operation. HomeSide
plans to continue to pursue bulk acquisitions in the secondary market for
mortgage servicing rights on an opportunistic basis.
WHOLESALE PRODUCTION
Correspondent Production
Through its correspondent program, HomeSide purchases loans from
approximately 500 commercial banks, savings and loan associations, licensed
mortgage lenders and other financial intermediaries. The correspondent takes the
mortgage application and processes the loan, which is either underwritten
through contract underwriters or, in some cases, the correspondent to whom
underwriting authority has been delegated. Closing documents are submitted to
HomeSide for legal review and funding. The participants in this program are
prequalified and monitored on an ongoing basis by HomeSide. If a correspondent
subsequently fails to meet HomeSide's requirements, HomeSide typically
terminates the relationship. Correspondents are also required to repurchase
loans in the event of fraud or misrepresentation in the origination process and
for certain other reasons.
Co-Issue Production
Co-issue production, which represents the purchase of servicing rights from
a correspondent under contracts to deliver specified volumes on a monthly or
quarterly basis, is another main source of HomeSide's production. The co-issue
correspondent controls the entire loan process from application to closing. This
arrangement particularly suits large originators who have the ability to deliver
on an automated basis. Reflecting this delegated underwriting authority,
co-issue correspondents are subject to more extensive credit and quality control
reviews. Contractually, the co-issue correspondent is obligated to make certain
representations and warranties and is required to repurchase loans in the event
of fraud or misrepresentation in the origination process or for certain other
reasons.
Broker Production
Under its broker program, HomeSide funds loans at closing from a network of
approximately 450 mortgage brokers nationwide. The broker controls the process
of application and loan processing. A pre-closing quality control review is
performed by HomeSide to verify the borrower's credit. All loans originated
through brokers are underwritten by HomeSide's approved contract underwriters.
Loans are funded by HomeSide and may be closed in either the broker's name or
HomeSide's name. Participants in this program prequalify on the basis of
creditworthiness, mortgage lending experience and reputation. Each broker is
subject to annual and ongoing reviews by HomeSide.
DIRECT PRODUCTION
HomeSide's direct production includes the use of telemarketing to solicit
loans from several sources, including refinancings of mortgage loans in
HomeSide's existing servicing portfolio, leads generated from direct mail
campaigns and other advertising, and mortgages related to affinity group and
co-branding partnerships. HomeSide acquired HLI's telemarketing system which was
established in May 1995. HomeSide believes that these efforts will have a
significant effect on increasing the percentage of loans captured by the direct
division from loan prepayments in HomeSide's servicing portfolio. Refinancing
retention represents the percentage of loans refinanced through HomeSide's
direct channel that were serviced by HomeSide prior to refinancing.
In April 1996, pursuant to a two-year agreement, HomeSide began offering
mortgage loans through the American Airlines AAdvantage Program, which
encompasses approximately 14 million households. Under
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this program, a borrower receives one frequent flyer mile for every dollar of
interest paid on time. HomeSide offers loans in four out of five geographic
regions in the United States, along with two other lenders in each region. Each
lender receives one third of the referrals from the AAdvantage program, or
prospective borrowers may contact the lender directly. HomeSide pays American
Airlines a fee for each mile earned by a borrower. Under the program, such fees
are paid to American Airlines on a monthly basis as the borrower earns miles by
making monthly interest payments. The program is in its infancy and fees paid to
American Airlines by HomeSide for miles earned have thus far been insignificant.
HomeSide plans to establish additional affinity relationships.
Under the terms of the HLI and HHI Acquisitions, BKB has retained all of
its retail production facilities in the New England area and Barnett retained
all of its loan production facilities except for Honolulu Mortgage. Upon selling
HLI and HHI to the Parent, BKB and Barnett entered into exclusive five-year
agreements to sell, subject to certain limitations, all loans originated from
these sources to HomeSide on a broker or correspondent basis at market rates. In
1996, HomeSide sold or closed HLI's remaining retail branches.
BULK ACQUISITION
Bulk acquisition is the large scale purchase of mortgage servicing rights.
In connection with such acquisitions, HomeSide does not purchase the underlying
mortgage loans which were originated by other originators. HomeSide may purchase
servicing rights on an exclusive basis or through a competitive bidding process
and plans to continue this practice on an opportunistic basis in order to grow
its servicing portfolio and benefit from economies of scale.
UNDERWRITING AND QUALITY CONTROL
Underwriting
HomeSide's loans are underwritten in accordance with applicable Fannie Mae,
FHLMC, VA, and FHA guidelines, as well as certain private investor requirements.
The underwriting process is organized by origination channel and by loan type.
HomeSide currently employs underwriters with an average of ten years of
underwriting experience.
HomeSide requires approximately 80% of its correspondent lenders to have
their loans underwritten by third party contract underwriters prior to purchase.
These contract underwriters are designated by HomeSide and include General
Electric Capital Corp., Mortgage Guaranty Insurance Corp., and Private Mortgage
Insurance Corp. HomeSide grants delegated underwriting status to the remaining
approximately 20% of correspondents which enables the correspondent to submit
conventional loans to HomeSide without prior underwriting approval. Generally,
HomeSide grants delegated underwriting status to its larger correspondents who
meet financial strength, delinquency, underwriting and quality control
standards, and such correspondents are monitored regularly. The FHA and VA
require that loans be underwritten by the originating lender on an
Agency-approved or delegated basis. If issuance of FHA guarantees or VA
insurance certificates is denied, the correspondent must repurchase the loan.
HomeSide implemented an automated underwriting process for its retail
production operation in 1994. The automated underwriting technology incorporates
credit scoring and appraisal evaluation systems. These systems employ
rules-based and statistical technologies to evaluate the borrower, the property
and salability of the loan to the secondary market. HomeSide believes that these
technologies have contributed to improved productivity and reduced underwriting
and processing turnaround time.
Quality Control
HomeSide maintains a compliance and quality assurance department that
operates independently of the production, underwriting, secondary marketing and
loan administration departments. For its production compliance process, HomeSide
randomly selects a statistical sample of all closed loans monthly for review.
The sample generally comprises 3 1/2% - 4% of all loans closed each month. This
review includes a credit scoring and reunderwriting of such loans; ordering
second appraisals on 10% of the sample; reverifying funds, employment and final
applications; and reordering credit reports on all loans selected. In addition,
a full underwriting review is conducted on (i) all jumbo loans that go into
default during the first thirty-six months from the date of origination and (ii)
all other loans that go into default during the first six months from the date
of origination. Document and file reviews are also undertaken to ensure
regulatory compliance. In
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<PAGE> 93
addition, random reviews of the servicing portfolio, covering selected aspects
of the loan administration process, are conducted.
HomeSide monitors the performance of the underwriting department through
quality assurance reports, HUD/VA reports and audits, reviews and audits by
regulatory agencies, investor reports and mortgage insurance company audits.
According to HomeSide's quality control findings, less than 1% of its loans have
underwriting issues that affect salability to the secondary market. Flaws in
these loans are generally corrected; otherwise, the holder of the MBS is
indemnified against future losses resulting from such flaws by HomeSide or,
ultimately, the originating correspondent. Correspondents or co-issue partners
are required to repurchase any flawed loans originated by them. See "Risk
Factors -- Loan Delinquencies and Defaults on Loans" in the Prospectus
Supplement.
SECONDARY MARKETING
HomeSide customarily sells all loans that it originates while retaining the
servicing rights to such loans. HomeSide aggregates mortgage loans into pools
and sells these pools, as well as individual mortgage loans, to investors
principally at prices established under forward sales commitments. HomeSide's
FHA and VA loans are generally pooled and sold in the form of GNMA MBS.
Conforming conventional mortgage loans are generally pooled and exchanged under
the purchase and guarantee programs sponsored by Fannie Mae and FHLMC for Fannie
Mae MBS or FHLMC participation certificates, respectively. HomeSide pays certain
guarantee fees to the Agencies in connection with these programs and then sells
the GNMA, Fannie Mae and FHLMC securities to securities dealers. A limited
number of mortgage loans (i.e. non-conforming loans) are sold to private
investors. In the period March 16, 1996 to November 30, 1996, approximately 92%
of the mortgage loans originated by HomeSide were sold to GNMA (48%), Fannie Mae
(31%) or FHLMC (13%). The remaining approximately 8% were sold to private
investors.
The sale of mortgage loans may generate a gain or loss to HomeSide. Gains
or losses result primarily from two factors. First, HomeSide may purchase a loan
at a price that may be higher or lower than HomeSide would receive if it
immediately sold the loan in the secondary market. These pricing differences
occur principally as a result of competitive pricing conditions in the primary
loan origination market. Second, gains or losses may result from fluctuations in
interest rates that create changes in the market value of the loans or
commitments to purchase loans, from the time the interest rate commitment is
given to the mortgagor until the loan is sold to an investor.
HomeSide assesses the interest rate risk associated with outstanding
commitments that it has extended to fund loans and hedges the interest rate risk
of these commitments based upon a number of factors, including the remaining
term of the commitment, the interest rate at which the commitment was provided,
current interest rates and interest rate volatility. HomeSide constantly
monitors these factors and adjusts its hedging on a daily basis as needed.
HomeSide uses the Quantitative Risk Management system, a sophisticated hedging,
reporting and evaluation system, which has the ability to perform analyses under
various interest rate scenarios. HomeSide's interest rate risk is currently
hedged using a combination of forward sales of MBS and over-the-counter options,
including both puts and calls, on fixed income securities. HomeSide generally
commits to sell to investors for delivery at a future time for a stated price
all its closed loans and a percentage of the mortgage loan commitments for which
the interest rate has been established. HomeSide aims to price loans
competitively, hedge the interest rate risk of loan originations and sell loans
on a break-even basis. For the period March 16, 1996 to November 30, 1996,
HomeSide has not experienced secondary marketing losses on an aggregate basis.
HomeSide's policy is to sell mortgage loans on a non-recourse basis.
However, in the case of VA loans used to form GNMA pools, the VA's loan
guarantees do not cover the entire principal balance of the loan and HomeSide is
responsible for losses which exceed the VA's guaranteed limitations. See "--
Loan Servicing Credit Issues". In connection with HomeSide's loan exchanges and
sales, HomeSide makes representations and warranties customary in the industry
relating to, among other things, compliance with laws, regulations and program
standards, and to accuracy of information. In the event of a breach of these
representations and warranties, HomeSide typically corrects such flaws, but, if
the flaws cannot be corrected, may be required to
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<PAGE> 94
repurchase such loans. In cases where loans are originated by a correspondent,
HomeSide may sell the flawed loan back to the correspondent under a repurchase
obligation.
LOAN SERVICING
HomeSide derives its revenues predominantly from its servicing operations.
HomeSide anticipates that the sale of servicing rights will not be a significant
component of its business strategy in the future. Since its formation, HomeSide
has also maintained a risk management program designed to protect, within
certain parameters, the economic value of its servicing portfolio, which is
subject to prepayment risk when interest rate declines provide mortgagors with
refinancing opportunities.
CHANGES IN SERVICING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE FOR THE THREE FOR THE PERIOD
MARCH 1, 1996 MONTHS ENDED MONTHS ENDED MARCH 1, 1996
TO MAY 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996 TO NOVEMBER 30, 1996
--------------- ---------------- ------------------ --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, beginning of
period...................... $41,844 $77,351 $84,819 $41,844
Total additions............. 37,184 9,842 5,244 52,270
Scheduled amortization........ 212 470 494 1,176
Prepayments................... 1,321 1,702 1,529 4,552
Foreclosures.................. 130 137 106 373
Servicing sales............... 14 65 221 300
------- ------- ------- -------
Total reductions............ 1,677 2,374 2,350 6,401
------- ------- ------- -------
Balance, end of period........ $77,351 $84,819 $87,713 $87,713
======= ======= ======= =======
</TABLE>
Loan servicing includes collecting payments of principal and interest from
borrowers, remitting aggregate loan payments to investors, accounting for
principal and interest payments, holding escrow funds for payment of mortgage
related expenses such as taxes and insurance, making advances to cover
delinquent payments, inspecting the mortgaged premises as required, contacting
delinquent mortgagors, supervising foreclosures and property dispositions in the
event of unremedied defaults, and other miscellaneous duties related to loan
administration. HomeSide collects servicing fees from monthly mortgage payments.
These fees generally range from 0.25% to 0.50% of the declining principal
balances of the loans per annum. HomeSide's weighted average servicing fee was
0.359% at November 30, 1996. HomeSide also maintains certain subservicing
relationships whereby servicing is performed by another servicer under an
agreement with HomeSide, which remains contractually responsible for servicing
the loans. Subservicing relationships are often entered into as part of a bulk
servicing acquisition where the selling institution continues to perform
servicing until the loans are transferred to the purchasing institution.
HomeSide's servicing strategy is to continue to build its mortgage
servicing portfolio and benefit from the economies of scale inherent in the
business. HomeSide services substantially all of the mortgage loans that it
originates. In addition, HomeSide purchases the rights to service mortgage loans
originated by other lenders.
As part of the HHI Acquisition, the Parent acquired and contributed to the
Issuer a full-service mortgage company in Hawaii, Honolulu Mortgage. Honolulu
Mortgage's servicing portfolio totaled $1.9 billion at November 30, 1996 and its
loan production was $257.4 million since its acquisition on May 31, 1996. In
February 1997, Honolulu Mortgage sold substantially all its assets to an
unaffiliated third party. The Issuer does not expect the sale to materially
affect HomeSide's financial results.
HomeSide's servicing strategy is also to enhance the profitability of its
servicing revenue through low cost and efficient processes. This strategy is
pursued through highly automated, cost effective processing systems, strategic
outsourcing of selected servicing functions and effective control of
delinquencies and foreclosures. HomeSide outsources to third party vendors
functions related to insurance, taxes and default management,
49
<PAGE> 95
contributing to HomeSide's ability to maintain a highly variable cost structure.
Using a variety of factors, including loans serviced per employee and direct
cost per loan, management believes that HomeSide is one of the nation's most
efficient servicers based on industry surveys. Management believes that its low
cost servicing provides it with a competitive advantage in the industry.
SERVICING PORTFOLIO COMPOSITION
HomeSide originates and purchases servicing rights for mortgage loans
nationwide. The broad geographic distribution of HomeSide's servicing portfolio
reflects the national scope of HomeSide's originations and bulk servicing
acquisitions. The nine largest states accounted for 64.7% of outstanding UPB of
the total servicing portfolio of HomeSide at November 30, 1996, while the
largest volume by state is Florida with a 19.6% share of the total portfolio at
November 30, 1996. HomeSide actively monitors the geographic distribution of its
servicing portfolio to maintain a mix that it deems appropriate and makes
adjustments as it deems necessary.
At November 30, 1996, HomeSide's servicing portfolio consisted of $31.4
billion of FHA/VA servicing and $51.4 billion of conventional servicing.
SERVICING PORTFOLIO BY STATE(A)
<TABLE>
<CAPTION>
AT NOVEMBER 30, 1996
------------------------
STATE UPB % OF UPB
------------------------------------------------------------- ----------- --------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Florida...................................................... $16,262 19.6%
California................................................... 12,934 15.6
Texas........................................................ 5,081 6.1
Massachusetts................................................ 4,199 5.1
Maryland..................................................... 3,865 4.7
Georgia...................................................... 3,251 3.9
Virginia..................................................... 3,087 3.7
Illinois..................................................... 2,692 3.3
Colorado..................................................... 2,240 2.7
Other(b)..................................................... 29,209 35.3
------- -----
Total........................................................ $82,820 100.0%
======= =====
</TABLE>
- ---------------
(a) Servicing statistics are based on loans serviced by HomeSide and exclude
loans purchased not yet on servicing system.
(b) No other state represents more than 2.7% of HomeSide's servicing portfolio.
50
<PAGE> 96
SERVICING PORTFOLIO BY COUPON(A)
<TABLE>
<CAPTION>
AT NOVEMBER 30, 1996
---------------------------------------
CUMULATIVE
INTEREST RATE UPB % OF UPB % OF UPB
- ---------------------------------------------------------- ----------- -------- ----------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Less than 6.0%............................................ $ 1,016 1.2% 1.2%
6.0% to 6.9%.............................................. 9,254 11.2 12.4
7.0% to 7.9%.............................................. 34,698 41.9 54.3
8.0% to 8.9%.............................................. 26,843 32.4 86.7
9.0% to 9.9%.............................................. 7,198 8.7 95.4
10.0% to 10.9%............................................ 2,963 3.6 99.0
Over 11.0%................................................ 848 1.0 100.0
------- -----
Total........................................... $82,820 100.0%
======= =====
</TABLE>
- ---------------
(a) Servicing statistics are based on loans serviced by HomeSide and exclude
loans purchased not yet on servicing system.
LOAN SERVICING CREDIT ISSUES
HomeSide is affected by loan delinquencies and defaults on loans that it
services. Under certain types of servicing contracts, particularly contracts to
service loans that have been pooled or securitized, HomeSide must forward all or
part of the scheduled payments to the owner of the loan, even when loan payments
are delinquent. Also, to protect their liens on mortgaged properties, owners of
loans usually require a servicer to advance scheduled mortgage and hazard
insurance and tax payments even if sufficient escrow funds are not available.
HomeSide is generally reimbursed, subject to certain limitations with respect to
FHA/VA loans as described below, by the mortgage owner or from liquidation
proceeds for payments advanced that the servicer is unable to recover from the
mortgagor, although the timing of such reimbursement is typically uncertain. In
the interim, HomeSide absorbs the cost of funds advanced during the time the
advance is outstanding. Further, HomeSide bears the increased costs of
collection activities on delinquent and defaulted loans. HomeSide also foregoes
servicing income from the time such loan becomes delinquent until foreclosure,
when, if any proceeds are available, it may recover such amounts. In addition,
delinquency rates typically rise in the winter months, which results in higher
servicing costs. However, late charge income has historically been sufficient to
offset such incremental expenses.
HomeSide periodically incurs losses attributable to servicing FHA and VA
loans for investors, including actual losses for final disposition of loans that
have been foreclosed or assigned to the FHA or VA and accrued interest on such
FHA or VA loans for which payment has not been received. For HomeSide, servicing
losses on investor-owned loans totaled $13.0 million for the period March 16,
1996 to November 30, 1996, primarily representing losses on VA loans. Because
the total principal amount of FHA loans is guaranteed, losses on such loans are
generally limited to expenses of collection. HomeSide experiences minimal losses
from FHA loans. In respect of VA loans, the VA guarantees the initial losses on
a loan. The guaranteed amount generally ranges from 20% to 35% of the original
principal balance. Before each foreclosure sale, the VA determines whether to
bid by comparing the estimated net sale proceeds to the outstanding principal
balance and the servicer's accumulated reimbursable costs and fees. If this
amount is a loss and exceeds the guaranteed amount, the VA typically issues a
no-bid and pays the servicer the guaranteed amount. Whenever a no-bid is issued,
the servicer absorbs the loss, if any, in excess of the sum of the guaranteed
principal and amounts recovered at the foreclosure sale. HomeSide's historical
delinquency and foreclosure rate experience on VA loans has generally been
consistent with that of the industry.
HomeSide's management believes that it has an adequate level of reserve
based on HomeSide's servicing volume, portfolio composition, credit quality and
historical loss rates, as well as estimated future losses.
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<PAGE> 97
Set forth below is HomeSide's delinquency and foreclosure experience.
SERVICING PORTFOLIO DELINQUENCIES
(PERCENT BY LOAN COUNT)
<TABLE>
<CAPTION>
TOTAL FORECLOSURE
30 DAYS 60 DAYS 90+ DAYS PAST DUE INVENTORY
------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
At May 31, 1996.......................... 2.97% 0.60% 0.35% 3.92% 0.66%
At August 31, 1996....................... 3.08% 0.64% 0.48% 4.20% 0.95%
At November 30, 1996..................... 3.50% 0.68% 0.58% 4.76% 1.02%
</TABLE>
SERVICING PORTFOLIO HEDGING PROGRAM
The value of HomeSide's servicing portfolio is subject to volatility in the
event of unanticipated changes in prepayments. As interest rates increase,
prepayments by mortgagors decrease as fewer owners refinance, increasing
expected future cash flows from servicing revenue. Conversely, as interest rates
decrease, prepayments by mortgagors increase as homeowners seek to refinance
their mortgages, reducing expected future cash flows from servicing revenues on
those prepaid mortgages. Since the value of servicing rights is based on the net
present value of future cash flows, the value of the portfolio decreases in a
declining interest rate environment and increases in a rising rate environment.
HomeSide's risk management policy is designed to minimize exposure to loss
in the value of the servicing portfolio caused by prepayments due to declines in
interest rates. The servicing portfolio is valued using market discount rates
and market consensus prepayment speeds, among other variables. The value is then
analyzed under various interest rate scenarios that help HomeSide estimate the
exposure to loss. This potential loss exposure determines the hedge profile,
which profile is monitored daily and may be adjusted to reflect significant
moves in key variables such as interest rate and yield curve changes and revised
prepayment speed assumptions. Results of the risk management program depend on a
variety of factors, including the hedge instruments typically used by HomeSide,
the relationship between mortgage rates and Treasury securities and certain
other factors. See "Risk Factors -- Impact of Changes in Interest Rates; Results
of Risk Management Activities" in the Prospectus Supplement and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
HomeSide -- Results of Operations -- Risk Management Activities".
The FASB has been evaluating the accounting for derivative financial
instruments and hedging activities. The FASB has issued an exposure draft and
numerous comments have been received. It is unclear what changes will ultimately
be made to such exposure draft. Under current practice, derivative financial
instruments may be accounted for as hedges with changes in the value deferred as
a component of the asset or liability being hedged, provided the instruments are
designated as a hedge and reduce exposure to loss with a high correlation.
Management of HomeSide is unable to predict what effect, if any, changes in
accounting principles would have on HomeSide's financial statements or
HomeSide's use of hedge accounting.
SERVICING INTEGRATION
To facilitate administration and to effect the economies of scale targeted
by management, HomeSide's servicing operations are expected to be integrated
over the next year. HomeSide has one servicing site located in Jacksonville,
Florida, which at March 1, 1996 serviced approximately 522,000 loans with a
servicing staff of approximately 400. HHI had servicing operations located in
Jacksonville, Florida and San Antonio, Texas. Prior to the sale of substantially
all the assets of Honolulu Mortgage in February, 1997 to an unaffiliated third
party, approximately 11,000 loans were serviced at Honolulu Mortgage. These
loans and the servicing rights were sold as part of the February, 1997 sale.
HomeSide plans to integrate the existing former HLI portfolio with the former
HHI portfolio in stages based on the capacity and capabilities of each of the
respective
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<PAGE> 98
servicing sites. HomeSide has completed the transfer of its approximately
145,000 loans at HHI's Jacksonville facility to San Antonio for servicing.
In addition to the physical consolidation of servicing operations, HomeSide
intends to pursue the conversion of the entire servicing platform to HHI's
proprietary software. This proprietary servicing technology accommodates all
areas of loan servicing, including loan setup and maintenance, cashiering,
escrow administration, investor accounting, customer service and default
management. The platform is mainframe based, with on-line, real-time
architecture and is supported by an experienced staff of over 30 technology
providers.
HomeSide expects to achieve significant competitive advantages over time by
converting to the proprietary servicing software, which is expected to cost less
to operate than HomeSide's current outsourced system and is configured to
accommodate growth more efficiently than the current HomeSide system. Once the
conversion has been completed, this architecture is expected to support
HomeSide's portfolio growth to a size of up to approximately twice its size. The
system is also expected to permit continued development of workflow and other
client-server applications, contributing to increased productivity.
Several other measures are expected to be undertaken by HomeSide in order
to operate more efficiently. HomeSide has outsourced HHI's hazard insurance, tax
payments and default functions to specialized vendors, as was the historic
practice at HLI. The consolidation of the two servicing operations in
Jacksonville is expected to result in a reduction in headcount. In addition, the
plan to have dedicated centers for conventional and FHA/VA servicing in
Jacksonville and San Antonio, respectively, is expected to yield additional
economies through specialization.
EMPLOYEES
As of November 30, 1996, HomeSide had approximately 1,718 total employees,
substantially all of whom were full-time employees. HomeSide has no unionized
employees and considers its relationship with its employees generally to be
satisfactory. Upon consummation of the HHI Acquisition, HomeSide had
approximately 2,300 total employees, substantially all of whom were full-time
employees.
PROPERTIES
HomeSide's corporate, administrative, and servicing headquarters are
located in Jacksonville, Florida, in facilities, which comprise approximately
145,000 square feet of owned space and approximately 135,000 square feet of
leased space. The servicing center lease expires on August 31, 1999 unless
HomeSide exercises its options to renew, which could extend the lease for an
additional six years. The Issuer also leases approximately 53,000 square feet of
warehouse space in Jacksonville, Florida for storing certain loan files, loan
servicing documents and other corporate records. In addition, HomeSide leases
190,000 square feet of space in San Antonio, Texas. HomeSide believes that its
present facilities are adequate for its operations.
REGULATION
HomeSide's mortgage banking business is subject to the rules and
regulations of HUD, FHA, VA, Fannie Mae, FHLMC, GNMA and other regulatory
agencies with respect to originating, processing, underwriting, selling,
securitizing and servicing mortgage loans. In addition, there are other federal
and state statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on HomeSide,
prohibit discrimination and establish underwriting guidelines which include
provisions for inspections and appraisals, require credit reports on prospective
borrowers and set maximum loan amounts. Moreover, lenders such as HomeSide are
required annually to submit audited financial statements to Fannie Mae, FHLMC,
GNMA and HUD and to comply with each regulatory entity's own financial
requirements. HomeSide's business is also subject to examination by Fannie Mae,
FHLMC and GNMA and state regulatory agencies at all times to assure compliance
with applicable regulations, policies and procedures.
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<PAGE> 99
Mortgage origination activities are subject to the provisions of various
Federal and state statutes including, among others, the Equal Credit Opportunity
Act, the Federal Truth-in-Lending Act, the Real Estate Settlement Procedures
Act, the Fair Housing Act, and the regulations promulgated thereunder, which,
among other provisions, prohibit discrimination, prohibit unfair and deceptive
trade practices and require the disclosure of certain basic information to
mortgagors concerning credit terms and settlement costs, limit fees and charges
paid by borrowers and lenders, and otherwise regulate terms and conditions of
credit and the procedures by which credit is offered and administered. Many of
the aforementioned regulatory requirements are designed to protect the interests
of consumers, while others protect the owners or insurers of mortgage loans.
Failure to comply with these requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicers,
demands for indemnification or loan repurchases, class action lawsuits and
administrative enforcement actions. Such regulatory requirements are subject to
change from time to time and may in the future become more restrictive, thereby
making compliance more difficult or expensive or otherwise restricting
HomeSide's ability to conduct its business as such business is now conducted.
Prior to the HLI Acquisition, HLI was a wholly-owned operating subsidiary
of a national bank, and subject to substantially all of the regulations and
restrictions applicable to a national bank. Prior to the HHI Acquisition, HHI
was a wholly-owned subsidiary of a bank holding company. During the period that
BKB or Barnett, or any of their subsidiaries, retains a material ownership
interest in HomeSide or the Parent, HomeSide (i) will be under the jurisdiction,
supervision, and examining authority of the OCC, and (ii) may only engage in
activities that are part of, or incidental to, the business of banking. The OCC
has specifically ruled that mortgage banking is a proper incident to the
business of banking.
There are various other state and local laws and regulations affecting
HomeSide's operations. HomeSide is licensed in those states that require
licensing to originate, purchase and/or service mortgage loans. Conventional
mortgage operations may also be subject to state usury statutes. FHA and VA
loans are exempt from the effect of such statutes. See "Risk Factors --
Regulation, Possible Changes and Related Matters" in the Prospectus Supplement.
LITIGATION
HomeSide is a defendant in a number of legal proceedings arising in the
normal course of business. HomeSide, in management's estimation, has recorded
adequate reserves in the financial statements for pending litigation.
Management, after reviewing all actions and proceedings pending against or
involving HomeSide, considers that the aggregate liability or loss, if any,
resulting from the final outcome of these proceedings will not have a material
effect on the financial position of HomeSide.
In recent years, the mortgage banking industry has been subject to class
action lawsuits which allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges. Class action lawsuits may be filed in the future against the mortgage
banking industry. In recently denying a motion to dismiss in a purported class
action brought against certain unrelated mortgage companies in a federal court
in Virginia, the court stated that the payment of certain fees to mortgage
brokers violates RESPA. No prediction can be made as to whether the ultimate
decision in such class action will be adverse to the defendant mortgage
companies, and, while the matter is still in a preliminary stage, based upon
available information, management of HomeSide believes that an adverse result
ultimately having general application to the mortgage banking industry
(including HomeSide), would not have a material adverse impact on the
consolidated financial position of HomeSide, nor upon the consolidated results
of operations for any fiscal period.
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<PAGE> 100
HLI -- HISTORICAL BUSINESS
HLI, at the time its loan servicing and production operations were acquired
by the Parent, was one of the largest full-service mortgage banking companies in
the United States, emphasizing wholesale mortgage originations and low cost
mortgage servicing. As of and for the year ended December 31, 1995 and the three
months ended March 31, 1996, HLI originated approximately $8.9 billion and $4.2
billion of mortgage loans, respectively, including co-issue production, and
serviced a loan portfolio of $41.6 billion and $44.2 billion, respectively, at
the end of such periods. For 1995, HLI was ranked as the 9th largest originator
of residential mortgage loans (including co-issue volume) and as the 16th
largest servicer of residential mortgage loans, according to National Mortgage
News, and as the 5th largest wholesale originator of mortgage loans (including
co-issue volume) according to Wholesale Access. HomeSide is headquartered in
Jacksonville, Florida. The following discussion summarizes HLI's operations up
to the date it was acquired by the Parent.
PRODUCTION
HLI participated in several origination channels, with a focus on wholesale
originations. In 1995, wholesale channels (correspondent, co-issue and broker)
represented approximately 90% of HLI's total production. No single source within
the correspondent or broker channels accounted for more than 2% of total
production in 1995. HLI's other origination channels included telemarketing,
affinity programs and retail branches. HLI also purchased servicing rights in
bulk from time to time. This multi-channel production base provided access to
and flexibility among production channels in a wide variety of market and
economic conditions. The table below details production by HLI's origination
channels:
RESIDENTIAL LOAN PRODUCTION BY CHANNEL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------ THREE MONTHS ENDED
1991 1992 1993 1994 1995 MARCH 31, 1996
------ ------ ------- ------- ------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholesale:
Correspondent................ $2,096 $2,947 $ 4,955 $ 3,364 $3,778 $2,031
Co-issue(a).................. 1,200 2,955 2,860 4,285 3,901 1,597
Broker....................... 231 934 1,431 498 291 191
------ ------ ------- ------- ------ ------
Total wholesale........... 3,527 6,836 9,246 8,147 7,970 3,819
Retail......................... 910 1,824 2,125 788 915 368
------ ------ ------- ------- ------ ------
Total production.......... 4,437 8,660 11,371 8,935 8,885 4,187
Bulk acquisitions(a)........... 760 1,046 2,311 5,538 683 --
------ ------ ------- ------- ------ ------
Total production and
acquisitions............ $5,197 $9,706 $13,682 $14,473 $9,568 $4,187
====== ====== ======= ======= ====== ======
</TABLE>
- ---------------
(a) Represents the acquisition of servicing rights, not the underlying loans.
Amounts represent the UPB of mortgage debt to which the acquired servicing
rights relate.
HLI competed nationwide by offering a wide variety of mortgage products
designed to respond to consumer needs and tailored to address market
competition. HLI was primarily an originator of fixed rate 15-and 30-year
mortgage loans, which collectively represented 77% of total production in 1995
and 81% of the total production in the first three months of 1996.
HLI's national loan production operation resulted in geographically diverse
originations, enabling HLI to diversify its risk across many markets in the
United States. HLI originated loans in 48 states and the District of Columbia
and its largest markets by state in 1995 were California (18.4% of UPB of
production), Texas (9.4%), Florida (7.1%), Georgia (5.1%) and Massachusetts
(4.5%). HomeSide's largest markets by state in the three months ended March 31,
1996 were California (19.5% of UPB of production), Maryland (7.5%), Texas
(6.9%), Florida (6.4%), and Georgia (5.1%).
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<PAGE> 101
SECONDARY MARKETING
HLI customarily sold all loans that it originated while retaining the
servicing rights to such loans. HLI aggregated mortgage loans into pools and
sold these pools, as well as individual mortgage loans, to investors principally
at prices established under forward sales commitments. In 1995, approximately
83% of the mortgage loans originated by HLI were sold to GNMA (43%), Fannie Mae
(31%) or FHLMC (9%). The remaining approximately 17% were sold to private
investors. In the three months ended March 31, 1996, approximately 92% of the
mortgage loans originated by HLI were sold to GNMA (48%), Fannie Mae (35%) or
FHLMC (9%). The remaining approximately 8% were sold to private investors. For
each year since 1990, HLI has not experienced secondary marketing losses.
LOAN SERVICING
HLI derived its revenues predominantly from its servicing operations. Since
1991, HLI's servicing portfolio has grown as originations and bulk servicing
acquisitions have exceeded scheduled principal reductions, prepayments,
foreclosures and sales of servicing rights. Since 1994, HLI also maintained a
risk management program designed to protect, within certain parameters, the
economic value of its servicing portfolio, which is subject to prepayment risk
when interest rate declines provide mortgagors with refinancing opportunities.
CHANGES IN SERVICING PORTFOLIO
<TABLE>
<CAPTION>
THREE MONTHS
1991 1992 1993 1994 1995 ENDED MARCH 31, 1996
------- ------- ------- ------- ------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
January 1st
balance............ $18,726 $20,601 $23,706 $27,999 $37,971 $41,555
Total additions.... 5,375 9,733 13,669 14,970 9,389 4,243
Scheduled
amortization....... 337 434 501 523 869 241
Prepayments.......... 1,303 4,345 8,123 3,372 2,740 1,274
Foreclosures......... 174 157 223 258 334 113
Servicing sales...... 1,686 1,692 529 845 1,862 12
------- ------- ------- ------- ------- -------
Total reductions... 3,500 6,628 9,376 4,998 5,805 1,640
------- ------- ------- ------- ------- -------
December 31st balance
or at end of
period............. $20,601 $23,706 $27,999 $37,971 $41,555 $44,158
======= ======= ======= ======= ======= =======
</TABLE>
Over the past five years, HLI's servicing portfolio grew steadily, from
$20.6 billion at December 31, 1991 to $41.6 billion at December 31, 1995, a 19%
compounded annual growth rate. HLI's weighted average servicing fee was 0.386%
at December 31, 1995.
SERVICING PORTFOLIO COMPOSITION
HLI originated and purchased servicing rights for mortgage loans
nationwide. The broad geographic distribution of HLI's servicing portfolio
reflected the national scope of HLI's originations and bulk servicing
acquisitions. The nine largest states accounted for 63.6% and 63.4% of
outstanding UPB of the total servicing portfolio of HLI at December 31, 1995,
and March 31, 1996, respectively, while the largest volume by state was
California with a 16.8% and 16.9% share of the total portfolio at December 31,
1995 and March 31, 1996, respectively.
56
<PAGE> 102
The following tables set forth certain information regarding HLI's
servicing portfolio:
SERVICING PORTFOLIO COMPOSITION(A)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
----------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FHA/VA....................... $ 9,898 $10,751 $12,524 $15,695 $19,880 $ 20,680
Conventional................. 10,703 12,955 14,130 20,113 21,041 21,636
------- ------- ------- ------- -------
Total serviced (UPB)....... $20,601 $23,706 $26,654 $35,808 $40,921 $ 42,316
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Servicing statistics are based on loans serviced by HLI and exclude loans
purchased not yet on servicing system.
SERVICING PORTFOLIO BY STATE(A)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT MARCH 31, 1996
------------------------ ------------------------
STATE UPB % OF UPB UPB % OF UPB
--------------------------------------- ----------- -------- ----------- --------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C>
California............................. $ 6,863 16.8% $ 7,168 16.9%
Massachusetts.......................... 3,784 9.2 3,759 8.9
Florida................................ 3,094 7.6 3,198 7.6
Maryland............................... 2,748 6.7 2,859 6.8
Texas.................................. 2,605 6.4 2,727 6.4
Virginia............................... 2,297 5.6 2,350 5.6
Georgia................................ 1,879 4.6 1,961 4.6
Connecticut............................ 1,430 3.5 1,449 3.4
Washington............................. 1,293 3.2 1,340 3.2
Other(b)............................... 14,928 36.4 15,505 36.6
------- ----- ------- -----
Total.................................. $40,921 100.0% $42,316 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(a) Servicing statistics are based on loans serviced by HLI and exclude loans
purchased not yet on servicing system.
(b) No other state represents more than 3.0% of HLI's servicing portfolio.
57
<PAGE> 103
SERVICING PORTFOLIO BY COUPON(A)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT MARCH 31, 1996
--------------------------------------- ---------------------------------------
CUMULATIVE CUMULATIVE
INTEREST RATE UPB % OF UPB % OF UPB UPB % OF UPB % OF UPB
- ------------------------- ----------- -------- ---------- ----------- -------- ----------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Less than 6.0%........... $ 515 1.3% 1.3% $ 636 1.5% 1.5%
6.0% to 6.9%............. 4,636 11.3 12.6 4,633 11.0 12.5
7.0% to 7.9%............. 16,621 40.6 53.2 18,550 43.8 56.3
8.0% to 8.9%............. 11,752 28.7 81.9 11,648 27.5 83.8
9.0% to 9.9%............. 4,923 12.0 93.9 4,532 10.7 94.5
10.0% to 10.9%........... 2,024 5.0 98.9 1,893 4.5 99.0
Over 11.0%............... 450 1.1 100.0 424 1.0 100.0
------- ----- ------- -----
Total.......... $40,921 100.0% $42,316 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(a) Statistics based on loans serviced by HLI and exclude loans purchased not
yet on servicing system.
LOAN SERVICING CREDIT ISSUES
For HLI, servicing losses on investor-owned loans totaled $2.8 million,
$7.2 million, $10.0 million and $5.6 million for the years ended 1993, 1994 and
1995 and the period January 1 to March 15, 1996, respectively, primarily
representing losses on VA loans. HLI's historical delinquency and foreclosure
rate experience on VA loans has generally been consistent with that of the
industry.
Set forth below is a comparison of HLI's historical delinquency and
foreclosure experience to national industry statistics compiled by the Mortgage
Bankers Association:
SERVICING PORTFOLIO DELINQUENCIES
(PERCENT BY LOAN COUNT)
<TABLE>
<CAPTION>
AT TOTAL FORECLOSURE
DECEMBER 31, 30 DAYS 60 DAYS 90+ DAYS PAST DUE INVENTORY
- ------------ ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993 HLI ........................... 2.91% 0.70% 1.00% 4.61% 1.41%
Industry Average (adjusted for
servicing portfolio mix)....... 3.77 0.88 1.10 5.75 1.27
1994 HLI............................ 3.13 0.70 0.97 4.80 1.19
Industry Average (adjusted for
servicing portfolio mix)....... 3.62 0.87 1.01 5.50 1.08
1995 HLI............................ 3.51 0.73 1.04 5.28 1.16
Industry Average (adjusted for
servicing portfolio mix)....... 3.89 0.84 0.95 5.68 1.11
</TABLE>
<TABLE>
<CAPTION>
AT
MARCH 31,
- ------------
<S> <C> <C> <C> <C> <C> <C>
1996 HLI............................ 2.65 0.56 0.59 3.80 1.00
</TABLE>
58
<PAGE> 104
HHI -- HISTORICAL BUSINESS
Prior to its acquisition by the Parent, HHI operated as a full-service
mortgage banking company, engaged in the origination, sale and servicing of
mortgage loans secured by residential properties. A significant portion of the
loans originated by HHI were underwritten to the standards and requirements of
secondary market investors and were sold as pools underlying mortgage-backed
securities guaranteed by Fannie Mae, FHLMC, GNMA and other institutional
investors. The balance was underwritten and retained by Barnett. In 1995 and the
three months ended March 31, 1996, HHI reported total production of $5.8 billion
and $1.6 billion, respectively and had a servicing portfolio of $33.4 billion at
December 31, 1995 and $33.0 billion at March 31, 1996. HHI was ranked as the
19th largest originator and as the 18th largest servicer of residential mortgage
loans for 1995, according to National Mortgage News. The following discussion
summarizes HHI's operations up to the date it was acquired by the Parent.
Prior to 1994, HHI originated loans primarily on a retail basis through
bank branches in Florida and Georgia. In 1994, HHI grew its origination business
and servicing portfolio substantially, primarily through two acquisitions. HHI
acquired Loan America, a wholesale mortgage banking company with a $4.0 billion
servicing portfolio, in October 1994. Headquartered in Miami, Florida, Loan
America originated loans through brokers in twelve states. The acquisition of
Loan America represented HHI's first entry into the wholesale origination
business.
In February 1995, HHI acquired BancPLUS, a full service mortgage company
with a $13.9 billion servicing portfolio. Headquartered in San Antonio, Texas,
BancPLUS was primarily a retail originator with thirty-six branch offices in
seventeen states. HHI's acquisition of BancPLUS included the company's
proprietary mortgage banking software for retail origination, secondary
marketing and servicing. It also included BancPLUS' wholly-owned subsidiary
Honolulu Mortgage, a full-service mortgage banking company based in Honolulu,
Hawaii with a $1.7 billion servicing portfolio.
In connection with the HHI Acquisition, the Parent acquired HHI's and its
subsidiaries' $33.0 billion servicing portfolio and servicing platform, its
proprietary mortgage servicing software, and Honolulu Mortgage, including its
production and servicing operations. Barnett retained its retail bank branch
network, the retail branch network acquired from BancPLUS, the broker network
acquired from Loan America and all of the related facilities. Barnett also
retained the facility which housed HHI's Jacksonville servicing unit. In
connection with the HHI Acquisition, BPFC was merged into BancPLUS, which in
turn was merged, together with LoanAmerica, into HLI. Also concurrently with the
HHI Acquisition, all of HHI's servicing portfolio was transferred to the Issuer,
except for certain portions of HHI's GNMA loans, which HHI retained. In the
future, it is expected that HHI will neither originate nor service any loans,
except for the GNMA loans retained by it on May 31, 1996. As part of the HHI
Acquisition, Barnett agreed to sell, subject to certain limitations, to HomeSide
all of its mortgage loan production on market terms pursuant to an exclusive,
five-year correspondent contract. See "Certain Relationships and Related
Transactions."
PRODUCTION
Prior to the HHI Acquisition, HHI expanded its production capabilities
primarily through recent acquisitions. Originations grew from $1.9 billion in
1991 to $5.8 billion in 1995. In 1995 and the three months ended March 31, 1996,
wholesale originations represented approximately 52% and 49%, respectively, of
HHI's total production and retail represented the balance.
Subsequent to the HHI Acquisition, Barnett sells, subject to certain
limitations, to HomeSide all of its mortgage loan production on market terms
pursuant to an exclusive, five-year correspondent contract, with the exception
of the loans held by Barnett. However, Barnett sells HomeSide the servicing
rights related to these loans on a co-issue basis. Under the terms of its
correspondent agreement, loans originated through the Barnett network are
underwritten on a delegated basis. HomeSide performs the secondary marketing
functions of pricing and hedging related to the correspondent production.
59
<PAGE> 105
Like HLI, HHI built a multi-channel production network as part of its
strategy to become a national mortgage banking business through several
channels, including Barnett's retail bank branch franchise; a national wholesale
broker group obtained through the Loan America acquisition; a national retail
network obtained through the BancPLUS acquisition; traditional correspondent
business; and production from the Honolulu Mortgage subsidiary. This
multi-channel production base provided HHI with the flexibility to shift its
production focus to the most appropriate channel given specific market
conditions.
RESIDENTIAL LOAN PRODUCTION BY CHANNEL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------ FIVE MONTHS ENDED
1991 1992 1993 1994 1995 MAY 31, 1996
------ ------ ------ ------ ------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Barnett banks branch retail.... $1,945 $3,507 $3,360 $2,559 $1,932 $ 537
BancPLUS retail (a)............ -- -- -- -- 606 192
Loan America broker (a)........ -- -- -- 401 1,386 378
Honolulu Mortgage (a).......... -- -- -- -- 244 83
Correspondent.................. -- -- -- 450 1,599 366
------ ------ ------ ------ ------ ------
Total production.......... $1,945 $3,507 $3,360 $3,410 $5,767 $1,556
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) Since date of acquisitions by HHI.
HHI's loan production operation, historically limited to the Florida and
Georgia markets, became national in scope over the last two years. This
expansion was achieved primarily through HHI's acquisitions of Loan America and
BancPLUS. Historically, the mortgage origination leader in Florida with a market
share in excess of 11%, HHI originated loans in 45 states and the District of
Columbia. Its largest markets by state in 1995 were Florida (34% of UPB of
production), California (8%), Ohio (7%), New York (6%) and Hawaii (6%) and its
largest markets by state in the five months ended May 31, 1996 were Florida (33%
of UPB of production), California (8%), New York (7%), Hawaii (7%) and Ohio
(6%).
Secondary Marketing
Prior to the acquisitions of LoanAmerica and BancPLUS, HHI sold
approximately 20% of the loans originated by the Barnett banks into the
secondary market, predominately to Fannie Mae. The remaining 80% were retained
in Barnett's portfolio. Subsequent to its recent acquisitions, HHI began to
deliver some loans to FHLMC and issue GNMA securities. In 1995 and the first
three months of 1996, approximately 81% and 95%, respectively, of the mortgage
loans originated by HHI were eligible for inclusion in the programs of GNMA,
Fannie Mae, or FHLMC. Those loans not sold under these programs were sold to
approximately seven private investors, including several state housing finance
agency programs. The integration of HHI's production profile into HomeSide is
expected to provide greater balance in originations overall and is expected to
increase the weighting toward conventional product.
Loan Servicing
As with HLI, HHI's strategy had been to build its mortgage servicing
portfolio to benefit from economies of scale and productivity improvements. The
HHI portfolio increased from $10.0 billion at the end of 1991 to $33.4 billion
at the end of 1995, primarily as a result of the Loan America and BancPLUS
acquisitions.
60
<PAGE> 106
CHANGES IN SERVICING PORTFOLIO
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
January 1st balance........................... $ 9,243 $10,034 $11,524 $13,085 $18,411 $33,411
Total additions(a).......................... 2,039 3,744 5,237 7,469 20,312 1,526
Reductions.................................... 1,248 2,254 3,016 2,143 4,241 1,911
Servicing sales............................... 0 0 660 0 1,071 7
------- ------- ------- ------- ------- -------
Total reductions............................ 1,248 2,254 3,676 2,143 5,312 1,918
------- ------- ------- ------- ------- -------
December 31st balance or end of period
balance..................................... $10,034 $11,524 $13,085 $18,411 $33,411 $33,019
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Includes $13.9 billion of servicing from BancPLUS which includes $1.7
billion of servicing from Honolulu Mortgage in 1995 and $4.0 billion of
servicing from LoanAmerica acquisition in 1994.
SERVICING PORTFOLIO COMPOSITION
Historically, HHI was primarily a servicer of conventional loans,
consisting of Fannie Mae and FLHMC product. The acquisition of HHI's servicing
portfolio reduced the percentage of HomeSide's government loans in the combined
servicing portfolios. Based on the combined servicing portfolios of HLI and HHI,
the percentage of conventional loans and FHA/VA loans serviced was 65% and 35%,
respectively, at December 31, 1995 and 65% and 35%, respectively, at March 31,
1996.
SERVICING PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, MARCH
------------------------------- 31,
1993 1994 1995 1996
------- ------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FHA/VA........................................................ $ 1,032 $ 1,082 $ 6,023 $ 5,586
Conventional.................................................. 12,053 17,329 27,388 27,433
------- ------- ------- -------
Total serviced (UPB)...................................... $13,085 $18,411 $33,411 $33,019
======= ======= ======= =======
ARM........................................................... 48% 41% 28% 27%
Fixed......................................................... 52% 59% 72% 73%
Weighted average coupon....................................... 7.34% 7.44% 8.05% 8.04%
Weighted average servicing fee (% of UPB)..................... 0.259% 0.261% 0.277% 0.346%
Weighted average maturity (months)............................ 257 259 261 260
</TABLE>
61
<PAGE> 107
The following table sets forth information regarding the geographic
distribution of HHI's servicing portfolio at March 31, 1996. Because of
Barnett's market presence in Florida, that state comprised approximately 38.8%
share of HHI's total portfolio at such date:
SERVICING PORTFOLIO BY STATE
<TABLE>
<CAPTION>
% OF
STATE UPB UPB
--------------------------------------------------------------------------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Florida............................................... $12,803 38.8%
California............................................ 4,689 14.2
Texas................................................. 1,739 5.3
Massachusetts......................................... 236 0.7
Maryland.............................................. 536 1.6
Virginia.............................................. 491 1.5
Georgia............................................... 870 2.6
Hawaii................................................ 2,015 6.1
Illinois.............................................. 1,060 3.2
Washington............................................ 864 2.6
Other................................................. 7,716 23.4
------- -----
Total....................................... $33,019 100.0%
======= =====
</TABLE>
The following table sets forth the coupon stratification of HHI's servicing
portfolio at March 31, 1996:
SERVICING PORTFOLIO BY COUPON
<TABLE>
<CAPTION>
% OF CUMULATIVE
INTEREST RATE UPB UPB % OF UPB
-------------------------------------------------------------- ----- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Less than 6.0%........................... $ 195 0.6% 0.6%
6.0% to 6.9%............................. 4,075 12.3 12.9
7.0% to 7.9%............................. 12,236 37.1 50.0
8.0% to 8.9%............................. 10,904 33.0 83.0
9.0% to 9.9%............................. 3,390 10.3 93.3
10.0% to 10.9%........................... 1,615 4.9 98.2
Over 11.0%............................... 604 1.8 100.0
------- ------
Total.......................... $33,019 100.0%
======= ======
</TABLE>
62
<PAGE> 108
LOAN SERVICING CREDIT ISSUES
The table below sets forth a comparison of HHI's historical delinquency and
foreclosure experience to national statistics compiled by the Mortgage Bankers
Association at December 31, 1995 and March 31, 1996:
SERVICING PORTFOLIO DELINQUENCIES
(PERCENT BY LOAN COUNT)
<TABLE>
<CAPTION>
TOTAL FORECLOSURE
30 DAYS 60 DAYS 90+ DAYS PAST DUE INVENTORY
------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995
HHI..................................... 3.47% 0.66% 0.49% 4.62% 0.55%
Industry Average (adjusted for servicing
portfolio mix)........................ 3.17 0.65 0.63 4.45 0.80
AT MARCH 31, 1996
HHI..................................... 2.95 0.59 0.39 3.93 0.66
</TABLE>
Under the terms of the HHI Acquisition, if HHI originated loans are
required to be repurchased out of a pool existing at May 31, 1996, Barnett is
obligated to purchase these loans from HomeSide for the following five-year
period. See "Certain Relationships and Related Transactions".
63
<PAGE> 109
THE ACQUISITIONS
THE HLI ACQUISITION
On March 15, 1996 the Parent acquired from Bank of Boston all of the
outstanding stock of HLI. Certain assets and liabilities of HLI were retained by
Bank of Boston, including HLI's mortgage retail production operations in New
England.
The Parent paid approximately $139.2 million in cash and issued 8,427,155
shares of Common Stock, representing approximately 45% of the then outstanding
Common Stock (having a value of approximately $86.8 million), to Bank of Boston
in consideration of all the stock of HLI. Also in connection with the HLI
Acquisition, Bank of Boston paid approximately $1.0 million in cash for 97,138
shares of the Parent's Class C Non-Voting Common Stock ("Class C Common Stock"),
representing 100% of the outstanding Class C Common Stock. Additionally, the
Parent agreed that if it acquired directly or indirectly all or any portion of
the capital stock or all or any substantial portion of the assets of another
person during the six-month period from the closing of the HLI Acquisition, the
Parent would pay to Bank of Boston, on the effective date of such acquisition,
cash in an additional amount determined pursuant to a formula set forth in the
Stock Purchase Agreement between the Parent and Bank of Boston dated December
11, 1995, as amended. Accordingly, upon the consummation of the HHI Acquisition,
the Parent paid an additional $5.0 million in cash to Bank of Boston.
Simultaneously with the closing of the HLI Acquisition, THL purchased
7,813,931 shares of Common Stock of the Parent, representing approximately 41%
of the then outstanding Common Stock, for approximately $80.4 million in cash
and MDP purchased 2,604,638 shares of Common Stock, representing approximately
14% of the then outstanding Common Stock, for approximately $26.8 million in
cash. The Parent also reserved shares of its Common Stock for issuance to
members of management of HomeSide at a price of $10.294 per share (the same
price paid by the Investors). Management of HomeSide has, since May 15, 1996,
purchased a total of 441,592 shares of Common Stock of the Parent, for an
aggregate purchase price of approximately $4.5 million. Simultaneously with the
closing of the HLI Acquisition, the Parent also issued 97,138 shares of its
Class B Non-Voting Common Stock ("Class B Common Stock"), representing 100% of
the outstanding Class B Common Stock, to Smith Barney Inc. in consideration of
services rendered to the Parent in connection with the HLI Acquisition pursuant
to an agreement dated March 14, 1996. Immediately following consummation of the
HLI Acquisition, Bank of Boston sold its shares of Class C Common Stock to an
unaffiliated third party pursuant to an agreement dated March 13, 1996.
Upon consummation of the HLI Acquisition, HLI terminated its former line of
credit with Bank of Boston and entered into a new credit agreement with certain
other lenders. In connection with the HHI Acquisition, HomeSide modified its
credit facility entered into on March 15, 1996 by entering into the Bank Credit
Agreement. See "Description of Bank Credit Agreement". Also in connection with
the HLI Acquisition, HomeSide entered into various contractual arrangements with
Bank of Boston and its affiliates regarding the provision of certain operational
services between the parties and the purchase by HomeSide from Bank of Boston of
certain mortgage production and servicing rights of Bank of Boston. See "Certain
Relationships and Related Transactions".
THE HHI ACQUISITION
On May 31, 1996, the Parent acquired from Barnett all of the outstanding
stock of HHI. Certain assets and liabilities of HHI were retained by Barnett,
including those assets of HHI and its subsidiaries (other than Honolulu
Mortgage) associated with the loan origination or production activities of such
entities.
As consideration for all the stock of HHI, the Parent paid Barnett
approximately $228.2 million in cash. In connection with the HHI Acquisition,
Siesta, an affiliate of Barnett, BKB, THL and MDP paid to the Parent
approximately $118.0 million, $31.2 million, $8.1 million and $2.7 million,
respectively, in cash in exchange for shares of Common Stock of the Parent. As a
result, immediately prior to the January 1997 public offering of Common Stock of
the Parent, Siesta owned approximately 33% of the Parent, and THL and MDP,
collectively, and BKB each owned approximately 33% of the Parent.
64
<PAGE> 110
Upon consummation of the HHI Acquisition, HHI and its subsidiaries
terminated their former line of credit with Barnett. In connection with the HHI
Acquisition, HomeSide has entered into various contractual arrangements with
Barnett regarding the provision of certain operational services between the
parties and the purchase by HomeSide from Barnett of certain mortgage production
and servicing rights of Barnett. See "Certain Relationships and Related
Transactions".
Upon closing of the HHI Acquisition, the Parent contributed all of the
stock of HLI to HHI, whereupon the Issuer became a wholly-owned subsidiary of
HHI. All of HHI's servicing portfolio was transferred to HomeSide, except for
certain of HHI's GNMA loans, which HHI retained. All of HHI's former
subsidiaries, except Honolulu Mortgage, were merged with and into the Issuer.
All new business is expected to be carried on by HomeSide. The Parent may in the
future dissolve HHI if this would cause administrative convenience without
adverse tax or business consequences.
The following table sets forth the approximate sources and uses of cash and
equity related to (i) the HLI Acquisition and (ii) the HHI Acquisition as of the
respective dates of acquisition:
<TABLE>
<CAPTION>
HLI
ACQUISITION
HLI HHI AND
ACQUISITION ACQUISITION HHI
(MARCH 15, 1996) (MAY 31, 1996) ACQUISITION
---------------- -------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SOURCES:
Issuance of common stock of Parent.................... $ 200.0 $160.0 $ 360.0
Notes offering of Parent.............................. 112.5 87.5 200.0
Borrowings under Bank Credit Agreement................ 1,479.1 408.3 1,887.4
Cash acquired......................................... 23.2 11.2 34.4
-------- ------ --------
Total Sources.................................... $1,814.8 $667.0 $2,481.8
======== ====== ========
USES:
Acquisition of HLI.................................... $ 225.9 $ -- $ 225.9
Acquisition of HHI.................................... -- 228.2 228.2
Net purchase of certain Bank of Boston assets(a)...... 292.1 -- 292.1
Net purchase of certain Barnett assets................ -- 44.7 44.7
Repayment of pre-acquisition facility................. 1,256.0 378.1 1,634.1
Payment of debt issuance and acquisition expenses..... 38.8 11.0 49.8
Contingent payment to Bank of Boston.................. -- 5.0 5.0
Pro forma cash balances............................... 2.0 -- 2.0
-------- ------ --------
Total Uses....................................... $1,814.8 $667.0 $2,481.8
======== ====== ========
</TABLE>
- ---------------
(a) Represents the net effect of purchasing loans held for sale previously
attributable to participations of an affiliate of Bank of Boston of $507.3
million and excluding net assets retained by Bank of Boston of $215.2
million.
65
<PAGE> 111
MANAGEMENT
The following table sets forth the name, age and position with the Issuer
and Parent of each person who is an executive officer or director of the Issuer
or Parent.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
Joe K. Pickett.............. 51 Chairman of the Board and Chief Executive Officer (the
Issuer and the Parent); Director (the Issuer and the
Parent)
Hugh R. Harris.............. 45 President and Chief Operating Officer (the Issuer and
the Parent); Director (the Issuer and the Parent)
Kevin D. Race............... 36 Vice President, Chief Financial Officer and Treasurer
(the Parent); Executive Vice President and Chief
Financial Officer (the Issuer)
Robert J. Jacobs............ 44 Secretary and Vice President (the Parent); Executive
Vice President, Secretary and General Counsel (the
Issuer); Director (the Issuer)
Betty L. Francis............ 50 Vice President (the Parent); Chief Credit Officer and
Executive Vice President (the Issuer)
Mark. F. Johnson............ 42 Vice President (the Parent); Executive Vice President --
Secondary Marketing and Production (the Issuer)
William Glasgow, Jr......... 47 Vice President (the Parent); Executive Vice President
(the Issuer)
Daniel T. Scheuble.......... 38 Vice President (the Parent); Executive Vice President --
Technology (the Issuer)
Thomas H. Fish.............. 64 Vice President and Assistant Secretary (the Parent);
Executive Vice President and Assistant Secretary (the
Issuer)
W. Blake Wilson............. 31 Senior Vice President, Director of Capital Markets (the
Issuer)
Charles D. Gilmer........... 49 Senior Vice President and Treasurer (the Issuer)
Ann R. Mackey............... 39 Senior Vice President and Finance Director (the Issuer)
Thomas M. Hagerty........... 34 Director (the Parent); Risk Management Committee (the
Parent)
David V. Harkins............ 55 Director (the Parent)*
Justin S. Huscher........... 43 Director (the Parent); Risk Management Committee (the
Parent)**
Peter J. Manning............ 57 Director (the Parent)**
William J. Shea............. 48 Director (the Parent)*
Kathleen M. McGillycuddy.... 47 Director (the Parent); Risk Management Committee (the
Parent)
Hinton F. Nobles, Jr. ...... 51 Director (the Parent)
Douglas K. Freeman.......... 46 Director (the Parent)*
Charles W. Newman........... 47 Director (the Parent)**
</TABLE>
- ---------------
* Also serves as a member of the Compensation Committee of the Parent.
** Also serves as a member of the Audit Committee of the Parent.
The directors of the Issuer are elected each year by vote of HHI, a
wholly-owned subsidiary of the Parent. Each of the officers and directors shall
serve until their successors are elected and qualified or until their earlier
resignation or removal. It is expected that corporate officers of the Issuer
will be appointed annually by its Board of Directors.
JOE K. PICKETT has served as Chairman of the Board and Chief Executive
Officer of the Issuer since April 1990 and as Chairman of the Board, Chief
Executive Officer and a Director of the Parent since March 14, 1996. From
October 1994 through October 1995, Mr. Pickett served concurrently as President
of the Mortgage Bankers Association of America. Mr. Pickett also serves as a
Director of Fannie Mae.
66
<PAGE> 112
HUGH R. HARRIS has served as President and Chief Operating Officer of the
Issuer since January 1993 and as President, Chief Operating Officer and a
Director of the Parent since March 14, 1996. From January 1988 to January 1993,
Mr. Harris served as Vice Chairman of HLI in charge of production and secondary
marketing. Mr. Harris currently serves as a Director of Republic Mortgage
Insurance Company (RMIC).
KEVIN D. RACE has served as Executive Vice President and Chief Financial
Officer of the Issuer and Vice President, Chief Financial Officer and Treasurer
of the Parent since October 1996. From 1993 to 1996, Mr. Race served as
Executive Vice President, Chief Financial Officer and Treasurer of Fleet
Mortgage Group. In 1996, Mr. Race was named President of Fleet Mortgage Group.
In 1989, Mr. Race served in the mortgage capital markets and non-conforming
products areas of Fleet Mortgage Group. From 1985 to 1989, Mr. Race served as
Vice President and National Product Manager for Mortgage Backed Securities for
Citicorp. From 1982 to 1985, Mr. Race served in the secondary marketing area of
North American Mortgage Company.
ROBERT J. JACOBS has served as Executive Vice President and Secretary of
the Issuer since February 2, 1996. Mr. Jacobs has served as a Director of HLI
since March 14, 1996. Mr. Jacobs has also served as Secretary of the Parent
since March 14, 1996 and as Vice President of the Parent since April 10, 1996.
From 1987 to 1996, Mr. Jacobs served as a Senior Vice President and Chief Legal
Officer of Chase Manhattan Mortgage Corporation, and served as General Counsel
for Citicorp Savings of Florida from 1984 to 1986. Mr. Jacobs currently serves
as President and Legislative Chairman of the Mortgage Bankers Association of
Florida.
BETTY L. FRANCIS has served as Chief Credit Officer and as Executive Vice
President of the Issuer since October 1996 and as Vice President of the Parent
since April 10, 1996. Ms. Francis served from March 1994 to October 1996 as
Chief Financial Officer of HLI. Ms. Francis served from April 1993 to March 1994
as the Senior Finance Officer of the Personal Banking Group, and from April 1990
to April 1993 as the Comptroller of Bank of Boston and BKBC. Ms. Francis is a
Trustee of Commonwealth Energy Services, a gas and electric utility in
Massachusetts.
MARK F. JOHNSON has served as Executive Vice President of Secondary
Marketing and Production of the Issuer since April 1, 1992. From 1988 to 1992,
Mr. Johnson served as Senior Vice President and Director of Wholesale Lending
for HLI. Mr. Johnson also has served as Vice President of the Parent since April
10, 1996.
WILLIAM GLASGOW, JR. has served as Executive Vice President of the Issuer
since July 1991. From October 1989 to July 1991, Mr. Glasgow served as Senior
Vice President with Citicorp Mortgage Inc. in St. Louis, Missouri. Mr. Glasgow
has also served as Vice President of the Parent since April 10, 1996.
DANIEL T. SCHEUBLE has served as Executive Vice President for Technology,
Loan Processing and Consumer Direct Lending of the Issuer since 1993. From 1990
to 1992, Mr. Scheuble served as a Senior Technology and Operational Manager at
Bank of Boston. Mr. Scheuble has also served as Vice President of the Parent
since April 10, 1996.
THOMAS H. FISH has served as Executive Vice President of the Issuer since
1988. Mr. Fish has served as Assistant Secretary of HLI since March 14, 1996.
Mr. Fish served as Secretary and General Counsel of HLI from 1988 to March 14,
1996.
W. BLAKE WILSON has served as Senior Vice President and Director of Capital
Markets of the Issuer since June, 1996. Before joining HLI, Mr. Wilson served in
Capital Markets for Prudential Home Mortgage ("PHM") from 1992 through June,
1996. Prior to joining PHM, he worked in KPMG Peat Marwick's National Mortgage
and Structured Finance Group in Washington, D.C.
CHARLES D. GILMER has served as Senior Vice President and Treasurer of the
Issuer since October 1993. Mr. Gilmer previously served as the Director of
Liability Management for Citicorp from November 1989 to October 1993.
ANN R. MACKEY has served as Senior Vice President and Finance Director of
the Issuer since July 1993. From September 1992 to July 1993, Ms. Mackey served
as a manager in International Risk Management for Bank of Boston. Ms. Mackey
previously served as Senior Audit Manager at KPMG Peat Marwick from 1985 to
1992.
THOMAS M. HAGERTY served as Treasurer of the Parent from March 14, 1996 to
October 1996. Mr. Hagerty served as President of the Parent from its
organization, December 11, 1995 through March 14,
67
<PAGE> 113
1996. Mr. Hagerty has served as a Director of the Parent since December 11,
1995. Mr. Hagerty has been employed by the Thomas H. Lee Company since 1988, and
currently serves as a Managing Director. Mr. Hagerty is also a Vice President
and Trustee of THL Equity Trust III, the General Partner of THL Equity Advisors
III Limited Partnership, which is the General Partner of Thomas H. Lee Equity
Fund III, L.P. Mr. Hagerty also serves as a Director of Select Beverages, Inc.
DAVID V. HARKINS has served as a Director of the Parent since December 11,
1995. Mr. Harkins has been employed by the Thomas H. Lee Company since 1986 and
currently serves as a Senior Managing Director. Mr. Harkins has been Chairman
and Director of National Dentex Corporation, an operator of dental laboratories,
since 1983. Mr. Harkins also serves as Senior Vice President and Trustee of
Thomas H. Lee Advisors I, and T.H. Lee Mezzanine II, affiliates of ML-Lee
Acquisition Fund, L.P., and the ML-Lee Acquisition Funds, respectively,
President and Trustee of THL Equity Trust III, the General Partner of THL Equity
Advisors III Limited Partnership, which is the General Partner of Thomas H. Lee
Equity Fund III, L.P. and is a Director of Stanley Furniture Company, Inc.,
First Alert, Inc., and various private corporations.
JUSTIN S. HUSCHER has served as a Director of the Parent since December 11,
1995. Mr. Huscher has been principally employed as a Vice President of Madison
Dearborn Partners, Inc. since January 1993. From April 1990 until January 1993,
Mr. Huscher served as Senior Investment Manager of First Chicago Venture
Capital. Mr. Huscher is a member of the operating committees of the general
partners of Huntway Partners, L.P. and Golden Oak Mining Company, L.P.,
respectively, and a member of the board of directors of Bay State Paper Holding
Company.
PETER J. MANNING has served as a Director of the Parent since December 11,
1995. Mr. Manning has been employed by Bank of Boston and BKBC as Executive Vice
President, Mergers & Acquisitions since 1993. From 1990 to 1993, Mr. Manning
served as Executive Vice President, Chief Financial Officer and Treasurer of
BKBC and Chief Financial Officer of Bank of Boston.
WILLIAM J. SHEA has served as a Director of the Parent since October 2,
1996. Mr. Shea has served as Vice Chairman, Chief Financial Officer and
Treasurer of BKBC since October 28, 1993. Mr. Shea served as Executive Vice
President, Chief Financial Officer and Treasurer of BKBC from December, 1992
through October 28, 1993. Prior to joining BKBC, Mr. Shea spent 19 years with
Coopers and Lybrand where he was Vice Chairman and Senior Partner.
KATHLEEN M. MCGILLYCUDDY has served as a Director of the Parent since March
14, 1996. Ms. McGillycuddy has been employed by Bank of Boston since 1992 and
currently serves as Group Managing Director, Global Asset Liability Management.
Previously, Ms. McGillycuddy was employed by Fleet/Norstar Bank as Executive
Vice President, Corporate Liquidity and Funds Management from 1991 to 1992 and
by Bank of New England as Executive Vice President, Corporate Liquidity and
Capital Markets Manager prior to 1991.
HINTON F. NOBLES JR. has served as a Director of the Parent since May 31,
1996. Mr. Nobles has been employed by Barnett since 1974 and currently serves as
Executive Vice President and a member of the Management Executive Committee. He
was elected Vice President in 1981, Senior Vice President for Special Services
in 1983 and Executive Vice President in 1985. Mr. Nobles was named to his
current position in 1989.
DOUGLAS K. FREEMAN has served as a Director of the Parent since May 31,
1996. Mr. Freeman joined Barnett in 1991 and currently serves as Chief Consumer
Credit Executive and a member of Barnett's Management Operating Committee. From
1991 to 1995 Mr. Freeman served as Chief Corporate Banking Executive.
Previously, Mr. Freeman was employed by Wells Fargo Bank as Executive Vice
President of Business Banking and by Citizens & Southern Corporation as Senior
Vice President of Product and Sales Management. Mr. Freeman is past chairman of
the Consumer Bankers Association. He also chairs the Governor's Capital
Partnership Board of Florida and serves on the board of The Small Business
Foundation of America, Inc.
CHARLES W. NEWMAN has served as a Director of the Parent since May 31,
1996. Mr. Newman has been employed by Barnett since 1983 and currently serves as
Chief Financial Officer and a member of the Management Executive Committee. From
1983 to 1991, Mr. Newman served as Vice President and Deputy Controller, Senior
Vice President and Controller, and Executive Vice President of Barnett. Mr.
Newman was elected to his current position in 1992.
68
<PAGE> 114
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Issuer's Chief Executive Officer and the Issuer's five most highly
compensated Executive Officers other than the Chief Executive Officer whose
total annual salary and bonus exceeded $100,000 for all services rendered in all
capacities to HomeSide and its subsidiaries for the fiscal year ended February
28, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
PAYOUTS
AWARDS ---------
ANNUAL ----------------------- LONG-TERM
COMPENSATION(A) RESTRICTED SECURITIES INCENTIVE
NAME AND PRINCIPAL FISCAL ---------------- STOCK UNDERLYING PLAN ALL OTHER
HLI POSITION YEAR SALARY BONUS AWARDS OPTIONS(B) PAYOUTS COMPENSATION(C)
- --------------------------------- ------ -------- ----- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joe K. Pickett................... 1997 $312,000 $ 0 $0 242,862 $ 0 $ 50,000
Chairman & CEO
Hugh R. Harris................... 1997 300,000 0 0 242,862 0 225,000
President and Chief Operating
Officer
Kevin D. Race.................... 1997 250,000 0 0 97,155 0 0
Executive Vice President and
Chief Financial Officer
Mark F. Johnson.................. 1997 200,000 0 0 97,155 0 200,000
Executive Vice President --
Secondary Marketing and
Production
William Glasgow, Jr.............. 1997 200,000 0 0 97,155 0 200,000
Executive Vice President
Charles D. Gilmer................ 1997 175,000 0 0 97,155 0 175,000
Senior Vice President and
Treasurer
</TABLE>
- ---------------
(a) The salary of Mr. Race is per annum. Mr. Race has only been employed by HLI
since October 1996. Bonuses for the fiscal year ended February 28, 1997 have
not yet been determined. All bonuses will be subject to approval of the
Compensation Committee.
(b) Involves Common Stock of Parent. Reflects a 17 for 1 stock split of Parent's
Common Stock effected immediately prior to Parent's January 1997 initial
public offering.
(c) These payments reflect bonuses paid to the named executive officers in 1996
in connection with the closing of the HLI Acquisition.
69
<PAGE> 115
OPTION GRANTS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
The following table provides information on option grants with respect to
Parent Common Stock for the fiscal year ended February 28, 1997 to the named
executive officers. Pursuant to applicable regulations of the Commission, the
following table also sets forth the hypothetical value which might have been
realized with respect to such options based on assumed rates of stock
appreciation of 5% and 10% compounded annually from date of grant to the end of
the option terms:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------- ASSUMED
NUMBER OF ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(B)
GRANTED EMPLOYEES PRICE EXPIRATION ----------------------
NAME (#)(A) IN 1996 ($/SH)(A) DATE 5% 10%
- --------------------------------- ---------- ----------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joe K. Pickett................... 80,954(c) 18.11% $10.294 5/31/06 $523,772 $1,328,455
161,908(d) 18.11% $10.294 11/30/05 $984,401 $2,461,002
Hugh R. Harris................... 80,954(c) 18.11% $10.294 5/31/06 $523,772 $1,328,455
161,908(d) 18.11% $10.294 11/30/05 $984,401 $2,461,002
Kevin D. Race.................... 32,385(c) 7.24% $10.294 10/08/06 $209,531 $ 531,438
64,770(b) 7.24% $10.294 4/08/06 $393,802 $ 984,504
Charles D. Gilmer................ 32,385(c) 7.24% $10.294 5/31/06 $209,531 $ 531,438
64,770(d) 7.24% $10.294 11/30/05 $393,802 $ 984,504
Mark F. Johnson.................. 32,385(c) 7.24% $10.294 5/31/06 $209,531 $ 531,438
64,770(d) 7.24% $10.294 11/30/06 $393,802 $ 984,504
William Glasgow, Jr.............. 32,385(c) 7.24% $10.294 5/31/05 $209,531 $ 531,438
64,770(d) 7.24% $10.294 11/30/05 $393,802 $ 984,504
</TABLE>
- ---------------
(a) Reflects a 17 for 1 stock split of the Parent's Common Stock effected
immediately prior to its January 1997 initial public offering.
(b) These values are based on assumed rates of appreciation only. Actual gains,
if any, on shares acquired on option exercises are dependent on the future
performance of the Parent's Common Stock.
(c) Non-qualified timed-based options granted pursuant to the Parent's 1996
Employee Stock Option Plan. Options vest in five equal installments in
arrears, or 20% per year, with the first 20% vesting on April 30, 1997.
(d) Non-qualified, time-accelerated restricted stock options which vest nine
years from the date of grant, and may be exercised at any time within six
months thereafter. Vesting accelerates upon the achievement of certain
performance criteria.
70
<PAGE> 116
AGGREGATED OPTION EXERCISES AND OPTION VALUES
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
The following table provides information on option exercises during the
fiscal year ended February 28, 1997 with respect to the Parent Common Stock and
on the values of the named executive officers' unexercised options at February
28, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT YEAR-END(#)(A) OPTIONS AT YEAR-END
ON VALUE ---------------------------- -------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(B)
- ------------------------- ---------- --------- ------------ -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Joe K. Pickett........... 0 $ 0 0 242,862 $0 $ 1,962,568
Hugh R. Harris........... 0 0 0 242,862 0 1,962,568
Kevin D. Race............ 0 0 0 97,155 0 785,110
Charles D. Gilmer........ 0 0 0 97,155 0 785,110
Mark F. Johnson.......... 0 0 0 97,155 0 785,110
William Glasgow, Jr...... 0 0 0 97,155 0 785,110
</TABLE>
- ---------------
(a) None of the options granted to the named executive officers become
exercisable prior to April 30, 1997.
(b) Value of unexercised in-the-money stock options represents the difference
between the exercise prices of the stock options and the closing price of
the Parent's Common Stock on The New York Stock Exchange on February 28,
1997.
See "Certain Relationships and Related Transactions -- Management
Ownership" for information regarding shares of Common Stock of the Parent sold
to members of management.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Although none of the Issuer's executive officers are party to any
employment or non-competition agreements with the Issuer, and the Issuer is not,
therefore, contractually obligated to continue to pay such salaries, it is
expected that the annual salaries of the named executive officers will not be
reduced during the executive officers' term of employment with the Issuer.
Pursuant to severance agreements with the Issuer, certain executive
officers, including each of the named executive officers, will be entitled to
severance benefits if he is terminated, or constructively terminated through
diminution in job responsibilities or compensation following an acquisition (a
"Trigger Event"). If such named executive officer offers to remain in the employ
of the Issuer for one year following any Trigger Event, and is either terminated
during that first year or has his job responsibilities or compensation
diminished, he is entitled to a severance benefit. The severance benefit will be
a lump sum payment in cash equal in the case of each of Messrs. Pickett and
Harris to the sum of (i) twice his annual salary in effect at the time of
termination, (ii) his annual bonus received for the preceding two years and
(iii) a pro rata portion of the bonus he would have received for the year in
which termination occurs (paid at the time the amount of such bonus would have
been determined). The severance benefit for the other named executive officers
will be equal to the sum of (i) such officer's annual salary in effect at the
time of termination, (ii) his annual bonus received for the preceding year, and
(iii) a pro rata portion of the bonus he would have received for the year in
which termination occurs (paid at the time the amount of such bonus would have
been determined). The named executive officers will also receive continued
coverage under the Issuer's medical benefit plans for one year following such
termination, or two years following termination in the case of Messrs. Pickett
and Harris. Each of the Severance Agreements is for a term of one (1) year which
is automatically renewed on April 1 of each year for additional one-year periods
unless either the Issuer or the executive has given notice not later than
December 31st of the previous year to the other not to extend the term of the
Agreement. If a Trigger Event has occurred during the term of the Severance
Agreement, however, the Agreement continues for one (1) year following the
closing of the Trigger Event.
71
<PAGE> 117
HLI HISTORICAL EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Issuer's Chief Executive Officer and the Issuer's four most highly
compensated Executive Officers other than the Chief Executive Officer whose
total annual salary and bonus exceeded $100,000 for all services rendered in all
capacities to HLI and its subsidiaries for HLI's fiscal year ended December 31,
1995. None of the Issuer's named executive officers received any compensation
from HHI during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
PAYOUTS
AWARDS(b) -----------
----------------------- LONG-TERM
ANNUAL COMPENSATION RESTRICTED SECURITIES INCENTIVE
NAME AND PRINCIPAL ---------------------- STOCK UNDERLYING PLAN ALL OTHER
HLI POSITION YEAR SALARY(a) BONUS(a) AWARDS OPTIONS PAYOUT(c) COMPENSATION(d)
----------------- ---- --------- -------- ---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joe K. Pickett................... 1995 $287,000 $200,000 $68,700 9,600 $215,156 $11,480
Chairman & CEO
Hugh R. Harris................... 1995 275,000 225,000 42,938 6,000 0 11,000
President
Charles D. Gilmer................ 1995 170,769 155,000 0 0 0 0
Director, Risk Management
Mark F. Johnson.................. 1995 190,577 125,000 28,625 4,000 0 7,623
Director, Wholesale/Securities
Marketing
William Glasgow, Jr.............. 1995 189,230 125,000 28,625 4,000 0 7,569
Director Loan Administration
- ---------------
(a) The salary and bonus amounts presented were earned in 1995. The payment of
certain of such amounts occurred in 1996. The amounts reflected in the table
do not include the following bonuses paid to the named executive officers in
1996 in connection with the closing of the HLI Acquisition: Mr. Pickett,
$50,000; Mr. Harris, $225,000; Mr. Gilmer, $175,000; Mr. Johnson, $200,000;
and Mr. Glasgow, $200,000.
(b) Involves common stock of BKBC. As of December 31, 1995, the named executive
officers held the following number of restricted shares of BKBC common stock
having the corresponding year-end market values:
</TABLE>
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
TOTAL NUMBER OF AGGREGATE
NAME RESTRICTED SHARES HELD MARKET VALUE
---- ---------------------- ------------
<S> <C> <C>
Joe K. Pickett.................... 5,600 $259,000
Hugh R. Harris.................... 4,135 191,244
Charles D. Gilmer................. 0 0
Mark F. Johnson................... 1,784 82,510
William Glasgow, Jr. ............. 1,700 78,625
</TABLE>
In connection with the HLI Acquisition, vesting on all of the restricted
stock owned by HLI employees, including the restricted stock listed above,
was accelerated and all prior forfeiture and transferability restrictions
thereon were removed.
(c) Represents the dollar value of vested shares of performance restricted stock
calculated by multiplying the closing price of BKBC common stock on each
vesting date by the number of shares that vested on that date.
(d) Includes matching employer contributions and credits under the Bank of
Boston thrift-incentive plan and the Bank of Boston deferred compensation
plan for the named executive officers.
72
<PAGE> 118
OPTION GRANTS IN 1995
The following table provides information on option grants with respect to
BKBC common stock in fiscal 1995 to the named executive officers. Pursuant to
applicable regulations of the Commission, the following table also sets forth
the hypothetical value which might have been realized with respect to such
options based on assumed rates of stock appreciation of 5% and 10% compounded
annually from date of grant to March 15, 1996, the end of the option terms:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------ ASSUMED
NUMBER OF ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION --------------------
NAME (#)(a) IN 1995 ($/Sh) DATE 5% 10%
- ---- --------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Joe K. Pickett................................ 9,600 .90 $28.625 3/15/96 $15,631 $31,362
Hugh R. Harris................................ 6,000 .53 $28.625 3/15/96 $ 9,769 $19,601
Charles D. Gilmer............................. 0 0 0 -- --
Mark F. Johnson............................... 4,000 .40 $28.625 3/15/96 $ 6,513 $13,067
William Glasgow, Jr........................... 4,000 .40 $28.625 3/15/96 $ 6,513 $13,067
- ---------------
(a) All options were exercised prior to March 15, 1996.
</TABLE>
AGGREGATED OPTION EXERCISES IN 1995
AND DECEMBER 31, 1995 OPTION VALUES
The following table provides information on option exercises during 1995
with respect to BKBC common stock and on the values of the named executive
officers' unexercised options at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joe K. Pickett..................... 0 $ 0 32,100 4,800 $687,575 $84,600
Hugh R. Harris..................... 0 0 10,200 3,000 202,275 52,875
Charles D. Gilmer.................. 0 0 0 0 0 0
Mark F. Johnson.................... 0 0 5,200 2,000 108,250 32,250
William Glasgow, Jr................ 4,000 32,750 0 2,000 0 32,250
</TABLE>
In connection with the HLI Acquisition, vesting of all stock options listed
in the preceding table was accelerated and all such options listed as being
unexercised at year end were exercised with values realized as follows: Mr.
Pickett, $753,725; Mr. Harris, $248,550; Mr. Johnson, $139,900; and Mr. Glasgow,
$26,000.
73
<PAGE> 119
RETIREMENT BENEFITS
The following table shows the years of service and the estimated annual
retirement benefits that are payable at age 65 from BKBC to each of the named
executive officers in the form of a single lifetime annuity with an assumed
future annual interest rate of 6.3% through 1996 and 5.5% thereafter on each
individual's cash balance account:
<TABLE>
<CAPTION>
PRIOR YEARS OF SERVICE ESTIMATED ANNUAL
NAME AS OF 12/31/95 RETIREMENT BENEFIT
- ------------------------------------------------------------------------- ---------------------- ------------------
<S> <C> <C>
Joe K. Pickett........................................................... 15 $ 73,883
Hugh R. Harris........................................................... 12 50,676
Charles D. Gilmer........................................................ 2 2,386
Mark F. Johnson.......................................................... 13 48,616
William Glasgow, Jr...................................................... 4 6,836
</TABLE>
The estimates shown above reflect Bank of Boston's cash balance formula as
of December 31, 1995 (under which credits are made annually to an individual's
account at a rate based on the individual's age and years of service), plus any
accrued benefits under the prior plan formula. These benefits are provided under
a combination of Bank of Boston's tax-qualified retirement plan and certain
supplemental plans.
74
<PAGE> 120
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CAPITAL STOCK OF THE ISSUER
All of the outstanding common stock of HHI, consisting of 10,000 shares, is
owned by the Parent, and all of the outstanding common stock of the Issuer,
consisting of 100 shares, is owned by HHI.
CAPITAL STOCK OF THE PARENT
The following table and the paragraphs that follow set forth information
with respect to the beneficial ownership of shares of the Parent's voting
securities as of February 28, 1997 by (i) all shareholders of the Parent who own
more than 5% of any class of such voting securities; (ii) each director who is a
stockholder; (iii) certain executive officers; and (iv) all directors and
executive officers as a group, as determined in accordance with Section 13(d) of
the Exchange Act.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF VOTING
NAME OF BENEFICIAL OWNER COMMON STOCK STOCK OUTSTANDING
--------------------------------------------- ------------ ---------------------
<S> <C> <C>
The First National Bank of Boston............ 11,461,400 26.42%
100 Federal Street
Boston, MA
Siesta Holdings, Inc. ....................... 11,461,400 26.42%
3800 Howard Hughes Parkway
Suite 1560
Las Vegas, NV
THL.......................................... 8,596,050 19.82%
75 State Street
Boston, MA
Madison Dearborn Capital Partners, L.P....... 2,865,350 6.60%
Three First National Plaza
Chicago, IL
Joe K. Pickett............................... 77,724 *
Hugh R. Harris............................... 72,862 *
Kevin D. Race................................ 29,155 *
Charles D. Gilmer............................ 34,000 *
William Glasgow.............................. 43,724 *
Mark F. Johnson.............................. 48,620 *
Thomas M. Hagerty............................ 25,194(a) *
David V. Harkins............................. 39,661(b) *
All Directors and Executive Officers as a
Group (21 persons)......................... 429,046(c) *
</TABLE>
- ---------------
*Less than 1%.
(a) Does not include 8,570,856 shares owned by THL, as to which Mr. Hagerty
disclaims beneficial ownership.
(b) Does not include 8,556,389 shares owned by THL, as to which Mr. Harkins
disclaims beneficial ownership.
(c) Does not include the shares held by THL, MDP, Bank of Boston and Siesta,
with which certain directors are affiliated.
Each of the Principal Shareholders and certain of the stockholders set
forth above are party to a stockholder agreement which places certain
limitations on transactions with affiliated parties. All other terms of the
stockholder agreement have been terminated. See "Certain Relationships and
Related Transactions -- Amended and Restated Shareholder Agreement."
The Parent has issued 441,592 shares of the Parent's Common Stock to
members of management of HomeSide. The Parent has also granted options to
purchase shares of the Parent's Common Stock pursuant to employee stock option
plans. See "Management -- Executive Compensation," "The Acquisitions" and
"Certain Relationships and Related Transactions."
75
<PAGE> 121
In addition to those shares of capital stock set forth in the preceding
table, 97,138 shares of Class C Common Stock (non-voting) of the Parent are
beneficially owned by Robert Morrissey, constituting 100% of the outstanding
Class C Common Stock. Within 180 days of the initial public offering of common
stock of the Parent, a holder of Class C Common Stock may require the Parent to
purchase any portion of its shares of Class C Common Stock at a price based upon
the average bid prices of the Common Stock for the preceding 20 days. In
addition, upon consummation of a merger or sale of substantially all the assets
of the Parent, a holder of Class C Common Stock may require the Parent to
purchase any portion of its shares of Class C Common Stock at an appraised fair
market value price.
76
<PAGE> 122
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AMENDED AND RESTATED SHAREHOLDER AGREEMENT
Each of the Principal Shareholders and certain other stockholders named
therein entered into an Amended and Restated Shareholder Agreement with the
Parent dated May 31, 1996 in connection with the HHI Acquisition (the
"Shareholder Agreement"). The Shareholder Agreement terminated upon the
consummation of the January 1997 public offering of Common Stock of the Parent,
except for provisions pursuant to which the Parent has agreed not to enter into
transactions with certain affiliated parties except on terms which the Parent
could have received in comparable arms-length transactions.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Subject to certain limitations, pursuant to the Amended and Restated
Registration Rights Agreement among the Parent and the Principal Shareholders
dated May 31, 1996, upon the request of (i) holders of shares of Common Stock of
the Parent aggregating more than 50% of the number of shares of such Common
Stock then held by THL, (ii) the Bank of Boston, (iii) MDP, or (iv) Siesta
(provided that no request may be made for registration of securities with an
expected aggregate offering price to the public of less than $20,000,000), the
Parent will use its best efforts to effect the registration of the Common Stock
of the Parent requested by such stockholder to be registered and the Common
Stock of all other holders who have requested registration in connection
therewith; provided that the Parent is not required to effect more than two
registrations pursuant to any request made by any of the foregoing parties.
Under certain circumstances, if the Parent proposes to register shares of its
Common Stock, it will, upon the written request of any stockholder, register
such requesting stockholder's Common Stock, subject to pro rata reduction in the
event all securities requested to be included in the registration statement
cannot, in the opinion of the managing underwriter, be so included.
EXCLUSIVE MARKETING AGREEMENTS
The Issuer has entered into a Marketing Agreement dated March 15, 1996 (the
"BKBC Marketing Agreement") with BKBC pursuant to which HomeSide and BKBC may
market services to HomeSide customers who are also BKBC customers ("BKBC
Customers") and other customers of HomeSide. Under this agreement: (a) HomeSide
has the exclusive right, subject to certain limitations, to market to all
customers any mortgage loan refinancings, (b) HomeSide has the non-exclusive
right to market first mortgage loans (other than refinancings) to BKBC Customers
and the exclusive right to market such loans to other HomeSide customers, (c)
HomeSide has the exclusive right to market "other" mortgage loans to customers
who are not BKBC Customers, and BKBC has the exclusive right to market such
mortgage loans to BKBC Customers, (d) HomeSide has the non-exclusive right,
subject to certain limitations, to offer certain "Eligible Products" (mortgage
credit insurance, relocation services, title insurance, title search, appraisal
services, private mortgage insurance, escrow services, hazard insurance services
and certain other products) to BKBC Customers and the exclusive right to offer
Eligible Products to other customers, and (e) BKBC has the exclusive right to
offer certain banking services to BKBC Customers and the non-exclusive right to
offer such services to other customers.
Under the BKBC Marketing Agreement, BKBC may not engage in a formal program
to solicit HomeSide's customers for refinancings.
The term of the BKBC Marketing Agreement is the later of: (a) eight years,
or (b) the third anniversary of the termination of the Operating Agreement
(which has a term of five years). See "-- Other BKBC Agreements -- Operating
Agreement" below.
The Issuer has also entered into a Marketing Agreement dated May 31, 1996
(the "Barnett Marketing Agreement") with Barnett which is substantially similar
to the BKBC Marketing Agreement, except that it governs rights with respect to
"Barnett Customers" as defined therein rather than with respect to BKBC
Customers.
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HomeSide does not pay any fee or monies (other than certain reimbursement
obligations) to BKBC or Barnett for its marketing and other rights under the
BKBC Marketing Agreement or Barnett Marketing Agreement.
TRANSITIONAL SERVICES AGREEMENTS
Bank of Boston and its affiliate banks (the "BKB Banks") and the Issuer
have entered into a series of Transitional Services Agreements dated March 15,
1996, pursuant to which the BKB Banks agreed to make available to HomeSide, at
the BKB Banks' cost, certain corporate services, including travel and
relocation, general ledger support, audit, payroll, retirement plans, computer
services, disbursement accounting, purchasing, telecommunications/workstation
support and human resources. HomeSide also agreed to make available to the BKB
Banks, at HomeSide's cost, certain administrative services, including mortgage
loan origination support, mortgage loan quality control services, affordable
housing loan support and pledged loan support services. For the period March 16,
1996 through , HomeSide paid to BKB Banks $ under such
Transitional Services Agreements.
Barnett and the Issuer have entered into a Transitional Services Agreement
dated May 31, 1996, pursuant to which Barnett agreed to make available to
HomeSide office space and certain corporate services, including finance
services, accounting services, purchasing services, benefits and compensation
administration, human resources and staffing services and technology services.
HomeSide pays Barnett a monthly fee based on rates established under a fee
schedule for the different services provided to HomeSide. For the period March
16, 1996 through , HomeSide paid to Barnett $ under
such Transitional Services Agreement.
The terms of the services provided under the Transitional Services
Agreements vary. As a general matter, the services will be provided to the
receiving party until the receiving party no longer requires the services, but
in no event later than December 31, 1996. The term may be extended for 90 days
for most services, upon 60 days' prior written notice.
OTHER BKBC AGREEMENTS
Operating Agreement
The BKB Banks and the Issuer have entered into an Operating Agreement,
dated March 15, 1996 (the "BKBC Operating Agreement"), which sets forth the
parties' roles with respect to new loan originations and servicing rights. With
certain exceptions, the BKB Banks are required to sell all mortgage loan
production to HomeSide during the term of the BKBC Operating Agreement. In
particular, among other things, the BKBC Operating Agreement: (a) describes the
mortgage loan products to be purchased by HomeSide from BKB Banks, (b) ensures
that the BKB Banks receive the most favorable pricing and service released
premiums offered by HomeSide to correspondent lenders, (c) describes HomeSide's
customer service levels, (d) sets forth warehouse and pipeline management rights
and obligations, (e) describes the technology support which the parties provide
to one another, (f) describes the mortgage loan production and support functions
to be provided by the parties, (g) describes the reports and information
provided periodically by HomeSide to the BKB Banks, including, but not limited
to, risk management, internal performance and management reports, (h) sets forth
the penalties to be paid by the BKB Banks for failing to satisfy the buy price
expiration dates, (i) describes BKB Banks' mortgage loan repurchase obligations,
and (j) restricts HomeSide's ability to sell servicing rights relating to BKB
Banks' portfolio mortgage loans.
The fees paid by the BKB Banks to HomeSide for loan servicing are "market"
fees consistent with the fees charged by HomeSide to other mortgagees. For the
period March 16, 1996 through , HomeSide paid $ to the
BKB Banks under the BKBC Operating Agreement.
The term of the BKBC Operating Agreement is five years. The termination of
the BKBC Operating Agreement will not affect HomeSide's right to service
mortgage loans serviced prior to the termination date.
Correspondent Loan Purchase and Sale Agreement
The Issuer and the BKB Banks have also entered into a Correspondent Loan
Purchase and Sale Agreement, dated March 15, 1996 (the "BKB Correspondent Loan
Purchase Agreement"), which describes
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the mortgage loans eligible for sale to HomeSide by BKB, and related pricing and
delivery requirements for such loans. The BKB Banks receive the most favorable
pricing offered by HomeSide to correspondent lenders. For the period March 16,
1996 through , HomeSide paid $ to the BKB Banks under
the BKB Correspondent Loan Purchase and Sale Agreement. Under certain
conditions, the BKB Banks must indemnify HomeSide or repurchase mortgage loans
from HomeSide. The agreement provides certain underwriting, appraisal, mortgage
insurance and escrow requirements.
The term of the BKB Correspondent Loan Purchase Agreement is five years but
will automatically terminate upon the termination of the Operating Agreement.
PMSR Flow Agreement
The Issuer and the BKB Banks have entered into a PMSR Flow Agreement dated
March 15, 1996, which requires the BKB Banks, subject to certain exceptions, to
sell to HomeSide the servicing rights to the BKB Banks' portfolio mortgage
loans. The purchase price for the servicing rights is based upon a percentage
(which varies depending on the type of loan) of the principal balance of the
loan, as may be adjusted based on an independent third party's revaluation. For
the period March 16, 1996 through , HomeSide paid $ to
the BKB Banks under this PMSR Flow Agreement. The agreement also requires the
BKB Banks to provide certain notices to government agencies, flood service
providers, insurance carriers and borrowers upon the transfer of servicing
rights to HomeSide. The agreement describes the BKB Banks' obligation to prepare
and record assignments of mortgage and pay tax, service-related fees and flood
service fees. Under certain conditions, the BKB Banks must reimburse the
servicing rights purchase price to HomeSide.
The term of the PMSR Flow Agreement is five years but will automatically
terminate upon the termination of the BKBC Operating Agreement.
Mortgage Loan Servicing Agreement
The Issuer and the BKB Banks have entered into a Mortgage Loan Servicing
Agreement dated March 15, 1996 (the "BKBC Servicing Agreement"), which requires
HomeSide, subject to certain exceptions, to service the BKB Banks' portfolio
mortgage loans. HomeSide is also required to use reasonable efforts to collect
mortgage loan payments, to remit principal and interest to the BKB Banks each
month and to perform general ledger reconciliations and other related tasks.
HomeSide is also required to perform certain default loan administration and
foreclosure activities. HomeSide provides additional services for the BKB Banks'
private banking clients.
The servicing fees paid by the BKB Banks to HomeSide are market-based fees
consistent with the fees charged by HomeSide to other mortgagees. For the period
March 16, 1996 through , HomeSide paid $ to the BKB
Banks under the BKBC Servicing Agreement.
The term of the BKBC Servicing Agreement is five years. The BKB Banks will
not be obligated to deliver portfolio mortgage loan servicing rights to HomeSide
upon the termination of the BKBC Operating Agreement. However, the termination
of the BKBC Operating Agreement will not affect HomeSide's right to continue
servicing the BKB Banks' portfolio loans that are being serviced by HomeSide as
of such termination date.
OTHER BARNETT AGREEMENTS
Operating Agreement
Barnett and the Issuer have entered into an Operating Agreement, dated May
31, 1996 (the "Barnett Operating Agreement"), which sets forth the parties'
roles with respect to new loan originations and servicing rights. With certain
exceptions, Barnett and its affiliate banks (the "Barnett Banks") are required
to sell all mortgage loan production to HomeSide during the term of the Barnett
Operating Agreement. In particular, among other things, the Barnett Operating
Agreement: (a) describes the mortgage loan products to be purchased by HomeSide
from Barnett Banks, (b) ensures that the Barnett Banks receive the most
favorable pricing and servicing released premiums offered by HomeSide to
mortgage correspondents, (c) describes HomeSide's customer service levels, (d)
sets forth warehousing and pipeline management rights and
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obligations, (e) describes the technology support which the parties provide to
one another, (f) describes the mortgage loan production and support functions to
be provided by the parties, (g) describes the reports and information provided
periodically by HomeSide to the Barnett Banks, including, but not limited to,
risk management, internal performance and management reports, (h) sets forth
penalties to be paid by the Barnett Banks for failing to satisfy the buy price
expiration dates, (i) describes Barnett Banks' mortgage loan repurchase
obligations, and (j) restricts HomeSide's ability to sell servicing rights
relating to the Barnett Banks' portfolio mortgage loans. The fees paid by the
Barnett Banks to HomeSide for loan servicing are market-based fees consistent
with the fees charged by HomeSide to other mortgagees. For the period March 16,
1996 through , HomeSide paid $ to Barnett under the
Barnett Operating Agreement.
The term of the Barnett Operating Agreement is 5 years, subject to earlier
termination in certain specified instances. The termination of the Barnett
Operating Agreement will not affect HomeSide's rights to service mortgage loans
serviced prior to the termination date.
Correspondent Loan Purchase Agreement
The Issuer and Barnett Banks have entered into a Correspondent Loan
Purchase Agreement, dated May 16, 1996 (the "Barnett Correspondent Loan Purchase
Agreement"), which describes the mortgage loans which are eligible for sale to
HomeSide by the Barnett Banks and related pricing and delivery requirements for
such loans. The Barnett Banks receive the most favorable pricing offered by
HomeSide to other correspondents. For the period March 16, 1996 through
, HomeSide paid $ to Barnett under the Barnett
Correspondent Agreement. Under certain conditions, the Barnett Banks must
repurchase mortgage loans for HomeSide. The Barnett Correspondent Loan Purchase
Agreement provides certain underwriting, appraisal, mortgage insurance and
escrow requirements.
The term of the Barnett Correspondent Loan Purchase Agreement is 5 years
but will automatically terminate upon the termination of the Barnett Operating
Agreement.
PMSR Flow Agreement
The Issuer and the Barnett Banks have entered into a PMSR Flow Agreement
dated May 31, 1996 ("PMSR Flow Agreement"), which requires the Barnett Banks,
subject to certain exceptions, to sell to HomeSide the servicing rights to the
Barnett Banks' portfolio mortgage loans. The purchase price for the servicing
rights is based upon a percentage (which varies depending on the type of loan)
of the principal balance of the loan, as may be adjusted based on an independent
third party's revaluation. For the period March 16, 1996 through
, HomeSide paid $ to Barnett under this PMSR Flow
Agreement. The agreement also requires the Barnett Banks to provide certain
notices to government agencies, flood service providers, insurance carriers and
borrowers upon the transfer of servicing rights to HomeSide. The agreement
describes the Barnett Banks' obligation to prepare and record assignments of
mortgage and pay tax, service-related fees and flood service fees. Under certain
conditions, the Barnett Banks must reimburse the servicing rights purchase price
to HomeSide.
The term of the PMSR Flow Agreement is 5 years but will automatically
terminate upon the termination of the Barnett Operating Agreement.
Mortgage Loan Servicing Agreement
The Issuer and the Barnett Banks have entered into a Mortgage Loan
Servicing Agreement dated as of May 31, 1996 (the "Barnett Servicing Agreement")
which requires HomeSide, subject to certain exceptions, to service the Barnett
Banks' portfolio mortgage loans. HomeSide is also required to use reasonable
efforts to collect mortgage loan payments, to remit principal and interest to
the Barnett Banks each month and to perform general ledger reconciliations and
other related tasks. HomeSide is also required to perform certain default loan
administration and foreclosure activities. HomeSide provides additional services
for the Barnett Banks' private banking clients.
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The servicing fees paid by the Barnett Banks to HomeSide are market-based
fees consistent with those charged by HomeSide to other mortgagees. For the
period March 16, 1996 through , HomeSide paid $ to
Barnett under the Barnett Servicing Agreement.
The term of the Barnett Servicing Agreement is 5 years. The Barnett Banks
will not be obligated to deliver portfolio mortgage loan servicing rights to
HomeSide upon the termination of the Barnett Operating Agreement. However, the
termination of the Barnett Operating Agreement will not affect HomeSide's right
to continue servicing the Barnett Banks' portfolio loans that are being serviced
by HomeSide as of such termination date.
Each of the foregoing agreements described under "Certain Relationships and
Related Transactions" was entered into in connection with either the HLI
Acquisition or the HHI Acquisition. No additional consideration was paid or
received by HomeSide in connection with the execution and delivery thereof.
MANAGEMENT AGREEMENTS
The Issuer agreed to pay the Thomas H. Lee Company, MDP, Bank of Boston and
Barnett pursuant to management agreements entered into in connection with the
HLI Acquisition and the HHI Acquisition, an annual management fee of $250,000,
$83,334, $333,333 and $333,333, respectively. Such management agreements had a
term of five years automatically extended for successive one year terms, except
either party could terminate the agreement by delivering notice thereof 90 days
prior to the end of any such term. The management agreements terminated upon
consummation of the January 1997 offering of Common Stock of the Parent.
MANAGEMENT OWNERSHIP
The Parent has established option plans for employees of HomeSide pursuant
to which the Parent has reserved 1,748,569 shares of its Common Stock for grants
to employees of HomeSide.
In addition, certain members of management have purchased in the aggregate
441,592 shares of Common Stock of the Parent at a price of $10.294 per share,
the same price paid by the Principal Shareholders. In the case of certain
purchasers, the shares have been acquired with the proceeds of loans from HLI.
Such loans are evidenced by recourse notes secured by a pledge of the shares
purchased, having a term of approximately 5 years and bearing interest at 8.25%
per annum. In the case of the executive officers of HomeSide, the executives
executed promissory notes for the purchase of their Common Stock in the
following amounts: Mr. Pickett ($400,000); Mr. Harris ($350,000); Mr. Jacobs
($50,000); Mr. Race ($150,000); Ms. Francis ($100,000); Mr. Johnson ($250,000);
Mr. Wilson ($50,000); Mr. Glasgow ($225,000); Ms. Mackey ($10,000). The
management purchasers are party to a Management Stockholders' Agreement that
contains various restrictions on transfer. Management holders also have
piggyback registration rights. There is no right of repurchase by the Parent
upon termination of employment. Upon death of a management shareholder, such
management shareholder's estate has a right to require the Parent to acquire the
shares owned by such management shareholder and his or her permitted
transferees, subject to certain conditions and restrictions, for the lower of
$10.294 per share and fair market value.
DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK CREDIT AGREEMENT
Each of the Issuer and Honolulu Mortgage is a party to the Bank Credit
Agreement that includes a warehouse credit facility (the "Warehouse Credit
Facility") and a servicing receivables credit facility ("Servicing Credit
Facility") (collectively, the "Facilities"). The Bank Credit Agreement provides
for availability of up to $2.5 billion which may be used to provide funds for
the Issuer's and Honolulu Mortgage's business of making, originating, acquiring
and servicing mortgage loans.
Warehouse Credit Facility
The Warehouse Credit Facility provides for availability up to $2.5 billion
of borrowings, less amounts borrowed under the Servicing Credit Facility,
governed by a borrowing base which includes loans that are subject to binding
sale commitments or hedge contracts and certain mortgage-backed securities. The
borrowing base used for determining availability under the Warehouse Credit
Facility is reduced by the
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principal amount of commercial paper of the Issuer outstanding. The Warehouse
Credit Facility terminates on February 14, 2000 (the "Warehouse Termination
Date").
Servicing Credit Facility
The Servicing Credit Facility provides for availability of up to $950.0
million of borrowings governed by a borrowing base which includes (i) eligible
receivables arising from the Issuer's or Honolulu Mortgage's, as the case may
be, required monthly principal and interest payments for FHLMC, Fannie Mae and
GNMA mortgage-backed securities, (ii) eligible claims receivable related to
foreclosed loans serviced by the Issuer or Honolulu Mortgage, (iii) eligible
receivables in respect of payments of real estate taxes or receivables arising
from insurance premiums in respect of serviced loans, (iv) a portion of the
value of the servicing portfolio, (v) eligible receivables in respect of
advances made by the Issuer or Honolulu Mortgage, as the case may be, to
repurchase certain loans which are to be prepaid, and (vi) advances made by the
Issuer or Honolulu Mortgage, as the case may be, with respect to certain
defaulted loans. The amount of servicing portfolio included in the borrowing
base used for determining availability under the Servicing Credit Facility is
reduced by the principal amount of medium term notes of the Issuer outstanding.
The Servicing Credit Facility terminates on the Warehouse Termination Date.
Security
Borrowings under the facilities are guaranteed by the Parent. In addition,
the Parent has pledged to the Lenders (as defined in the Bank Credit Agreement)
all of the capital stock of HHI, HHI has pledged all the capital stock of the
Issuer and the Issuer has pledged all the capital stock of its subsidiaries as
security under the Bank Credit Agreement. Upon certain events, including the
Issuer having ratings on its unsecured long-term senior non-credit-enhanced debt
("Rated Debt") of less than BBB by Standard & Poor's Rating Services ("S&P") and
less than Baa2 by Moody's Investor Services, Inc. ("Moody's"), the Facilities
also become secured by (i) all mortgage loans and mortgage-backed securities
submitted for inclusion in the Warehouse Credit Facility borrowing base and all
take-out commitments and hedge contracts related thereto, (ii) all servicing
rights and hedge contracts and receivables related thereto, and (iii) any other
assets included in determining the borrowing bases under the facilities. The
Facilities will again become unsecured (except for the stock pledges) upon the
occurrence of certain other events.
Optional and Mandatory Prepayments
The entire unpaid principal balance under the Warehouse Credit Facility and
the Servicing Credit Facility will be due and payable on the Warehouse
Termination Date. The Issuer or Honolulu Mortgage, as the case may be, may
prepay (without premium) all or any part of the loans under the Bank Credit
Agreement or reduce the commitment (without penalty) under the Warehouse Credit
Facility at any time or from time to time in certain minimum increments
following specified notice periods. In addition, mandatory prepayments will be
required (i) in the amounts by which borrowings outstanding exceed the related
borrowing base at any time, (ii) with certain proceeds from debt issuances and
(iii) with proceeds of certain termination and similar fees under servicing
agreements. Amounts repaid under the Facilities may, absent any uncured or
unwaived default under the Bank Credit Agreement, be reborrowed during the term
of the Warehouse Credit Facility.
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Interest Rates and Fees
Loans under the Bank Credit Agreement bear interest at rates per annum,
based on, at the Issuer's option, (A) the highest of (i) Chase Manhattan Bank's
prime rate, (ii) the secondary market rate for certificates of deposit plus 1%,
and (iii) the federal funds rate in effect from time to time plus 0.5%, or (B) a
eurodollar rate, in each case with a margin based upon the rating of the Rated
Debt as announced by S&P and Moody's, in accordance with the following:
<TABLE>
<CAPTION>
APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN
FOR WAREHOUSE FOR SERVICING FOR SERVICING
RATING LEVEL LOANS ADVANCE LOANS PORTFOLIO LOANS
----------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
A- (A3) or higher.................. 0.350% 0.350% 0.550%
BBB+ (Baa1)........................ 0.375% 0.375% 0.625%
BBB (Baa2)......................... 0.375% 0.375% 0.625%
BBB- (Baa3)........................ 0.450% 0.450% 0.750%
BB+ (Ba1) or lower................. 0.600% 0.600% 1.000%
</TABLE>
In the event that at any time the Moody's rating differs from the S&P
rating then in effect (i) by two increments or more, the applicable rating level
shall be that which would apply to a rating one increment lower than the higher
of the Moody's rating and the S&P rating or (ii) by one increment, the
applicable rating level shall be that which would apply to the higher of the
Moody's rating and the S&P rating. The margins set forth in the middle column
above apply only to portions of the Servicing Credit Facility borrowing base
constituting advance receivables, while the margins in last column above apply
to all other portions of the Servicing Credit Facility borrowing base.
In addition to the foregoing interest rates, the Issuer has the ability
under the Bank Credit Agreement to solicit offers from the Banks for improved
interest rates on an advance by advance basis and, upon receipt of any such
offers, to obtain interest rates for some of its borrowings at more favorable
interest rates.
The annual commitment fee on the Facilities ranges from 0.100% to 0.250% of
the commitments thereunder depending upon the rating of the Rated Debt.
Restrictive Covenants
The Bank Credit Agreement contains certain covenants that impose
limitations and requirements on HomeSide, HHI and the Parent, including
limitations with respect to payments, dividends or distributions from the Issuer
to the Parent.
Other covenants in the Bank Credit Agreement impose limitations on HomeSide
with respect to, among other things: (i) the incurrence of certain additional
indebtedness; (ii) the incurrence of liens; (iii) the making of certain
investments other than certain permitted investments; (iv) fundamental changes
in HomeSide's business activities or the sale or disposition of a substantial
part of HomeSide's business or the acquisition of substantially all of the
assets or stock of any other person other than the dissolution of inactive
subsidiaries of the Issuer or intercompany mergers, sales or consolidation; (v)
capital expenditures in excess of $15.0 million in any fiscal year; (vi)
transactions with affiliates; (vii) entering into new lines of business; (viii)
making optional prepayments or redeeming or purchasing any indebtedness
evidenced by the Notes or modifying any such indebtedness; or (ix) amending the
material terms of the Parent's Shareholder Agreement. These covenants are
subject to various other customary exceptions under the Bank Credit Agreement.
The Issuer is also required to maintain compliance with certain financial
covenants, including:
(a) Maintaining an Adjusted Consolidated Tangible Net Worth (as
defined in the Bank Credit Agreement) equal to the sum of (i) an amount
equal to 80% of Adjusted Consolidated Tangible Net Worth (as defined in the
Bank Credit Agreement) as of February 14, 1997 plus (ii) an amount equal to
50% of the excess of (A) the aggregate amount of net proceeds received
during the period from February 14, 1997 through such date by the Company
from the issuance of capital stock other than to Principal Shareholders
over (B) the amount thereof applied to prepay or redeem the Notes plus
(iii) an
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amount equal to 80% of the sum of Consolidated Net Income (as defined in
the Bank Credit Agreement) for each fiscal quarter for which Consolidated
Net Income is positive during the period from February 14, 1997 through the
last day of the most recently ended fiscal quarter of the Issuer less (iv)
the amount of Restricted Payments (as defined in the Bank Credit Agreement)
actually made by the Issuer and permitted under the Bank Credit Agreement
during the period February 14, 1997 through such date (to the extent such
Restricted Payments were not deducted in determining such Adjusted
Consolidated Tangible Net Worth).
(b) Not permitting the ratio of Consolidated Total Liabilities (as
defined in the Bank Credit Agreement) to Adjusted Consolidated Tangible Net
Worth to exceed (i) 7.75:1.0 at any time during the period from February
14, 1997 through and including August 31, 1997, (ii) 7.5:1.0 at any time
during the period from September 1, 1997 through and including November 30,
1998 or (iii) 7.0:1.0 at any time thereafter.
(c) Not permitting the ratio of Consolidated Servicing-Related Debt
(as defined in the Bank Credit Agreement) to Adjusted Consolidated Tangible
Net worth to exceed (i) 2.0:1.0 at any time during the period from February
14, 1997 through and including August 31, 1997, (ii) 1.75:1.0 at any time
during the period from and including September 1, 1997 through and
including August 31, 1998 or (iii) 1.5:1.0 at any time thereafter.
(d) Not permitting (i) for the period of three consecutive fiscal
quarters of HomeSide ending on February 28, 1997, or (ii) for any period of
four consecutive fiscal quarters of HomeSide ending thereafter, the ratio
of (A) the sum of (1) Consolidated Cash Flow (as defined in the Bank Credit
Agreement) for such period plus (2) Consolidated Interest and Dividend
Expense (as defined in the Bank Credit Agreement) for such period to (B)
Consolidated Interest and Dividend Expense for such period to be less than
3.0:1.0.
Events of Default
The Bank Credit Agreement contains certain standard payment, covenant, and
bankruptcy-related events of default, as well as other events of default,
including, among other things, (i) the failure of the Issuer to pay any amount
of principal under the Bank Credit Agreement when due or any interest or fees
under the Bank Credit Agreement within five days after such amounts are due;
(ii) the failure of any party to a loan document (each, a "Loan Party") to
comply with any covenant, agreement, condition, provision, or term of any Loan
Document (as defined in the Bank Credit Agreement), provided that, in certain
cases, such Loan Party has a 30-day grace period in which to remedy such
failure; (iii) the default by the Parent, the Issuer or any of its subsidiaries
in payment of indebtedness aggregating $15.0 million or more, or the default by
the Parent, the Issuer or any of its subsidiaries in the observance of any
agreement or condition relating to indebtedness aggregating $15.0 million or
more which permits or causes the holder thereof to cause such indebtedness to
become due prior to its stated maturity; (iv) entry of unpaid judgments against
HomeSide of $12.0 million or more other than judgments that have been stayed
pending appeal within 60 days of entry; (v) the occurrence of certain events
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
that would have a material adverse effect on HomeSide; (vi) except upon a
Positive Security Event, the failure of any Security Document (as defined in the
Bank Credit Agreement) to remain in full force and effect or any lien granted
pursuant thereto to remain legal, valid and enforceable; (vii) the failure of
any Guarantee (as defined in the Bank Credit Agreement) to remain in full force
and effect, (viii) certain bankruptcy and insolvency events; (ix) any execution
or attachment whereby a substantial part of the Issuer's property is taken or
attempted to be taken and that is not vacated or stayed within 60 days; and (x)
certain changes of control relating to the Parent and the Issuer, including
where (a) HHI ceases to own 100% of the capital stock of the Issuer and/or the
ownership of the Parent by the Principal Shareholders on February 14, 1997 falls
below certain percentages or (b) a certain number of directors of the Parent as
of February 14, 1997 fail to continue as directors of the Parent.
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OTHER LENDING ARRANGEMENTS
On January 15, 1997 the Issuer entered into a Loan Agreement (as amended on
February 28, 1997) with The Chase Manhattan Bank ("Chase") pursuant to which it
may borrow up to $85.0 million on a revolving basis (the "Chase Revolving
Loans"). On March 14, 1997 the Issuer entered into a Loan Agreement with an
affiliate of Merrill Lynch pursuant to which it may borrow up to $35.0 million
on a revolving basis (the "Merrill Revolving Loans", and together with the Chase
Revolving Loans, the "Revolving Loans"). The Revolving Loans bear interest at a
rate per annum equal to the highest of (x) Chase's prime rate, as announced from
time to time; (y) the secondary market rate for certificates of deposit (grossed
up for maximum statutory requirements) plus 1%; and (z) the federal funds
effective rate announced from time to time plus 0.5%. The Revolving Loans mature
on the earlier of (i) April 1, 1997, or (ii) the consummation of the sale of
Notes offered hereby. The Revolving Loans are secured by certain servicing
assets of the Issuer.
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DESCRIPTION OF THE PARENT NOTES
The Parent has outstanding $200,000,000 in aggregate principal amount of
11 1/4% Series B Senior Secured Second Priority Notes due 2003 issued pursuant
to the terms of an indenture dated as of May 14, 1996 (the "Parent Note
Indenture") between the Parent, as issuer, and The Bank of New York, as trustee
("BONY"). The following summary of the material provisions of the Parent Note
Indenture does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Parent Note Indenture. The
Parent Notes will mature on May 15, 2003 and bear interest at the rate of
11 1/4% per annum. The Parent Notes are secured by a second priority pledge,
subject to a first priority pledge in favor of the lenders under the Bank Credit
Agreement, of all of the capital stock of each of the Parent's current and
future subsidiaries held directly by the Parent, including all of the capital
stock of the Issuer held by HHI. The Parent Notes are not secured by any lien
on, or other security interest in, any other properties or assets of the Parent
or its subsidiaries. The Parent Notes are senior obligations of the Parent and
the Indebtedness evidenced by the Parent Notes will rank pari passu in right of
payment with all other existing and future senior indebtedness of the Parent.
The Parent Notes are redeemable at the option of the Parent, as a whole or
from time to time in part, at any time on or after May 15, 2001, on not less
than 30 nor more than 60 days' prior notice at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued
interest, if any, to the redemption date, if redeemed during the 12-month period
beginning on May 15 of the years indicated below (subject to the right of
holders of record on relevant record dates to receive interest due on an
interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001....................................... 105.625%
2002....................................... 102.813%
</TABLE>
In addition, at any time or from time to time prior to May 15, 1999, the
Parent may redeem up to 35% of the aggregate principal amount of the Parent
Notes within 60 days of one or more equity offerings with the net proceeds of
such offering at a redemption price equal to 111.25% of the principal amount
thereof, together with accrued interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on an interest payment date); provided that immediately after
giving effect to any such redemption at least $75 million of the original
aggregate principal amount of the Parent Notes remains outstanding. The Parent
completed its initial public offering in January 1997. The Parent used a portion
of these proceeds to redeem $70.0 million principal amount of the Notes,
together with the applicable premium and interest accrued thereon.
The Parent Note Indenture contains covenants which, among other things,
limit the right of the Parent or its subsidiaries to incur indebtedness, permit
liens to exist on its properties, pay dividends on or make distributions to
holders of the Parent's capital stock, purchase or redeem any shares of the
Parent's capital stock, sell or issue additional shares of the capital stock of
its subsidiaries, consolidate or merge with any other persons or sell all or
substantially all of its assets.
The Parent Note Indenture provides that if a change of control (which term
is specifically defined in the Parent Note Indenture) shall occur at any time,
then each holder of Parent Notes shall have the right to require that the Parent
purchase such holder's Parent Notes, in whole or in part in integral multiples
of $1,000, at a purchase price in cash in an amount equal to 101% of the
principal amount thereof, plus accrued interest, if any, to the date of
purchase. Among the events which constitute a change of control under the Parent
Note Indenture is the acquisition by a person or group of more than 40% of the
outstanding voting stock of the Parent. The Parent Note Indenture contains
certain standard payment, covenant and bankruptcy-related events of default,
including, among other things, (i) the failure of the Parent to pay any interest
payment within thirty days after such amounts are due; (ii) the failure of any
person party to the Parent Note Indenture or any guaranty or pledge executed in
connection therewith to perform any covenant, warranty or other agreement
contained in the Parent Note Indenture, such guaranty or pledge; (iii) the
failure of the Parent to
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pay any of its indebtedness aggregating $15 million or more when such amounts
become due (after giving effect to applicable grace periods, cures and waivers);
(iv) any pledge or guarantee given to secure the Parent Notes ceases to be in
full force and effect; or (v) the occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the Parent or any of its
subsidiaries deemed significant.
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DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities. The extent, if any,
to which such general provisions do not apply to the Debt Securities offered by
any Prospectus Supplement will be described in such Prospectus Supplement.
The Debt Securities are to be issued under an indenture (the "Indenture"),
between the Issuer and The Bank of New York , as trustee (the "Trustee"), a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each series of Debt Securities issued pursuant to the
Indenture will be issued pursuant to an amendment or supplement thereto in the
form of a supplemental indenture or pursuant to an Officers' Certificate, in
each case delivered pursuant to resolutions of the Board of Directors of the
Issuer and in accordance with the provisions of Section 3.1 or Article 9 of the
Indenture, as the case may be. The terms of the Debt Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "TIA"). The Debt Securities are
subject to all such terms, and the holders of Debt Securities are referred to
the Indenture and the TIA for a statement of such terms.
The following summaries of certain provisions of the Indenture and the Debt
Securities are not complete and are qualified in their entirety by reference to
the provisions of the Indenture, including the definitions of capitalized terms
used herein without definition. Unless otherwise indicated capitalized terms
have the meaning given them in the Indenture. A copy of the Indenture is
available for inspection at the corporate trust office of the Trustee or upon
request from the Issuer. See "Available Information."
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder from time to time in one or more
series.
The Debt Securities will constitute unsecured and unsubordinated
indebtedness of the Issuer and will rank pari passu in right of payment with the
Issuer's other unsecured and unsubordinated indebtedness. However, the Debt
Securities will be effectively subordinated to all present and future secured
indebtedness of the Issuer as to the assets of the Issuer securing such
indebtedness and to the claims of creditors of the Issuer's subsidiaries as to
the assets of such subsidiaries. As of December 31, 1996, the Issuer had an
aggregate of $2,069.0 million of total indebtedness, all of which was secured.
Other than as described below under "Consolidation, Merger and Transfer of
Assets," the Indenture does not contain any provision that would limit the
ability of the Issuer to incur indebtedness or to substantially reduce or
eliminate the Issuer's assets or that would afford holders of Debt Securities
protection in the event of a decline in the credit quality of the Issuer or a
takeover, recapitalization or highly leveraged or similar transaction involving
the Issuer. In addition, subject to the limitations set forth under
"Consolidation, Merger and Transfer of Assets," the Issuer may, in the future,
enter into certain transactions, such as the sale of all or substantially all of
its assets or the merger or consolidation of the Issuer, that would increase the
amount of the Issuer's indebtedness or substantially reduce or eliminate the
Issuer's assets, which may have an adverse effect on the Issuer's ability to
service its indebtedness, including the Debt Securities. Reference is made to
the Prospectus Supplement relating to the particular series of Debt Securities
offered thereby, to the extent not otherwise described herein, for any
information with respect to any deletions from, modifications of or additions to
the Events of Default described below or covenants of the Issuer contained in
the Indenture, including any addition of a covenant or other provision providing
event risk or similar protection. The Bank Credit Agreement and the Parent Notes
Indenture contain certain covenants restricting the Issuer's ability to incur
indebtedness. Such covenants permit the Issuer to issue Debt Securities in an
aggregate principal amount of up to $ at , . See "Description of
Certain Indebtedness -- Bank Credit Agreement" and "Description of the Parent
Notes."
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series
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(Section 6.8). In the event that two or more persons are acting as Trustee with
respect to different series of Debt Securities, each such Trustee shall be a
Trustee of a trust under the Indenture separate and apart from the trust
administered by any other Trustee (Section 6.9), and, except as otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement and pricing supplement, if
any, relating to the particular series of Debt Securities offered thereby for a
description of the terms of such Debt Securities in respect of which this
Prospectus is being delivered, including, where applicable: (i) the designation,
aggregate principal amount and authorized denominations of such Debt Securities;
(ii) the percentage of the principal amount at which such Debt Securities will
be issued; (iii) the date (or the manner of determining or extending the date or
dates) on which the principal of such Debt Securities will be payable; (iv)
whether such Debt Securities will be issued in fully registered form or in
bearer form or any combination thereof; (v) whether such Debt Securities will be
issued in the form of one or more global securities and whether such global
securities are to be issuable in a temporary global form or permanent global
form; (vi) the rate or rates per annum at which such Debt Securities will bear
interest, if any, or the method or methods of determination of such rate or
rates and the basis upon which interest will be calculated if other than that of
a 360-day year consisting of twelve 30-day months; (vii) the date or dates from
which such interest, if any, on such Debt Securities will accrue or the method
or methods, if any, by which such date or dates are to be determined, the date
or dates on which such interest, if any, will be payable, the date on which
payment of such interest, if any, will commence and the Regular Record Dates for
such Interest Payment Dates, if any; (viii) the date or dates, if any, on or
after which, or the period or periods, if any, within which, and the price or
prices at which the Debt Securities may, pursuant to any optional redemption
provisions, be redeemed at the option of the Issuer or the holder thereof and
the other terms and provisions of such optional redemption; (ix) information
with respect to book-entry procedures relating to global Debt Securities; (x)
whether and under what circumstances the Issuer will pay Additional Amounts as
contemplated by Section 10.4 of the Indenture (the term "interest," as used in
this Prospectus, shall include such Additional Amounts) on such Debt Securities
to any holder who is a United States Alien (as defined in the
Indenture)(including any modification to the definition of such terms contained
in the Indenture as originally executed) in respect of any tax, assessment or
governmental charge and, if so, whether the Issuer will have the option to
redeem such Debt Securities rather than pay such Additional Amounts (and the
terms of any such option); (xi) any deletions from, modifications of or
additions to the Events of Default or covenants of the Issuer with respect to
any such Debt Securities; (xii) if either or both of Section 4.2(2) relating to
defeasance or Section 4.2(3) relating to covenant defeasance shall not be
applicable to the Debt Securities of such series, or any covenants in addition
to those specified in Section 4.2(3) relating to the Debt Securities of such
series shall be subject to covenant defeasance, and any deletions from, or
modifications or additions to, the provision of Article 4 of the Indenture
relating to satisfaction and discharge in respect of the Debt Securities of such
series; (xiii) any index or other method used to determine the amount of
payments of principal, premium (if any) and interest, if any, on such Debt
Securities; (xiv) if a trustee other than The Bank of New York is named for such
Debt Securities, the name of such trustee; and (xv) any other specific terms of
the Debt Securities (Section 3.1). All Debt Securities of any one series need
not be issued at the same time and all the Debt Securities of any one series
need not bear interest at the same rate or mature on the same date (Section
3.1).
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. One or more series of Debt
Securities may be floating rate debt securities, and may be exchangeable for
fixed rate debt securities. Federal income tax consequences and special
considerations applicable to any such series will be described in the Prospectus
Supplement relating thereto.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form without coupons
(Section 3.2). Debt Securities will be issued in
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denominations of $1,000 or any integral multiple thereof unless otherwise
provided in the Prospectus Supplement relating thereto (Section 3.2).
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of, and any premium or interest on, any series of Debt Securities
will be payable at the principal corporate trust office of the Trustee,
initially at 101 Barclay Street, New York, New York 10286, provided that, at the
option of the Issuer, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the related Security
Register or by wire transfer of funds to such Person at an account maintained
within the United States (Sections 3.1, 3.7 and 10.2).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder of such Debt Security on the
applicable regular record date and may either be paid to the Person in whose
name such Debt Security is registered at the close of business on a special
record date (the "Special Record Date") for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to the holder
of such Debt Security not less than ten days prior to such Special Record Date,
or may be paid at any time in any other lawful manner, all as more completely
described in the Indenture (Section 3.7).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the principal corporate trust office of the Trustee referred
to above (Section 3.5). In addition, subject to certain limitations imposed upon
Debt Securities issued in book-entry form, the Debt Securities of any series may
be surrendered for conversion or registration or transfer or exchange thereof at
the corporate trust office of the Trustee. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer (Section 3.5). No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith (Section 3.5).
If the applicable Prospectus Supplement refers to any transfer agent (in
addition to the Trustee) initially designated by the Issuer with respect to any
series of Debt Securities, the Issuer may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Issuer will be required to maintain a
transfer agent in each place of payment for such series. The Issuer may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 10.2).
Neither the Issuer nor the Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the mailing of notice of
redemption of any Debt Securities of that series to be redeemed and ending at
the close of business on the day of mailing of the relevant notice of
redemption; (ii) register the transfer of or exchange any Debt Security, or
portion thereof, called for redemption, except the unredeemed portion of any
Debt Security being redeemed in part; or (iii) issue, register the transfer of
or exchange any Debt Security that has been surrendered for repayment at the
option of the holder, except the portion, if any, of such Debt Security not to
be so repaid (Section 3.5).
No Debt Security shall be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose unless there appears on such Debt Security a
certificate of authentication substantially in the form provided for in the
Indenture duly executed by the Trustee by manual signature of one of its
authorized signatories, and such certificate upon any Debt Security shall be
conclusive evidence, and the only evidence, that such Debt Security has been
duly authenticated and delivered under the Indenture and is entitled to the
benefits of the Indenture (Section 3.3).
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
The Indenture provides that the Issuer may not (i) consolidate with or
merge into any Person or convey, transfer or lease its properties and assets as
an entirety or substantially as an entirety to any Person, or (ii) permit any
Person to consolidate with or merge into the Issuer, or convey, transfer or
lease its properties and
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assets as an entirety or substantially as an entirety to the Issuer, unless (a)
in the case of (i) above, such Person is organized and existing under the laws
of the United States of America, and State thereof or the District of Columbia
and shall expressly assume, by supplemental indenture satisfactory in form to
the Trustee, the due and punctual payment of the principal of and premium, if
any, and interest on all of the Debt Securities, and the performance of the
Issuer's obligations under the Indenture and the Debt Securities; (b)
immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Issuer or a Subsidiary as a
result of such transaction as having been incurred by the Issuer or such
Subsidiary at the time to such transaction, no Event of Default, and no event
which after notice or lapse of time or both would become an Event of Default,
shall have happened and be continuing; and (c) certain other conditions are met
(Section 8.1).
ADDITIONAL COVENANT AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Issuer and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof
will be described in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each of the following events will constitute an Event of Default with
respect to any series of Debt Securities issued under the Indenture (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body): (i) default in the payment of any interest
on any Debt Security of such series, or any Additional Amounts payable with
respect thereto, when such interest becomes or such Additional Amounts become
due and payable, and continuance of such default for a period of 30 days; (ii)
default in the payment of principal of or any premium on any Debt Security of
such series, or any Additional Amounts payable with respect thereto, when such
principal or premium becomes or such Additional Amounts become due and payable
either at maturity, upon any redemption, by declaration of acceleration or
otherwise; (iii) default in the deposit of any sinking fund payment, when and as
due by the terms of any Debt Security of such series; (iv) default in the
performance, or breach, of any covenant or warranty of the Issuer contained in
the Indenture for the benefit of such series or in the Debt Securities of such
series, and the continuance of such default or breach for period of 60 days
after there has been given written notice as provided in the Indenture; (v) if
any event of default as defined in any mortgage, indenture or instrument under
which there may be issued, or by which there may be secured or evidenced, any
Indebtedness (as defined below) of the Issuer or any Subsidiary, whether such
Indebtedness now exists or shall hereafter be created, shall happen and shall
result in such Indebtedness in principal amount in excess of $25,000,000
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable, and such acceleration shall not be rescinded
or annulled within a period of 10 days after there shall have been given written
notice as provided in the Indenture; (vi) the Issuer or any Subsidiary shall
fail within 60 days to pay, bond or otherwise discharge any uninsured judgment
or court order for the payment of money in excess of $25,000,000, which is not
stayed on appeal or is not otherwise being appropriately contested in good
faith; (vii) certain events in bankruptcy, insolvency or reorganization of the
Issuer or any Subsidiary, and (viii) any other Event of Default provided in or
pursuant to the Indenture with respect to Debt Securities of such series
(Section 5.1). The term "Indebtedness" means, with respect to any Person,
without duplication, (a) any liability of such Person (1) for borrowed money, or
under any reimbursement obligation relating to a letter of credit, or (2)
evidenced by a bond, note, debenture or similar instrument, or (3) for payment
obligations arising under any conditional sale or other title retention
arrangement (including a purchase money obligation) given in connection with the
acquisition of any businesses, properties or assets of any kind, or (4) for the
payment of money relating to a capitalized lease obligation; (b) any liability
of others of a type described in the preceding clause (a) that such Person has
guaranteed or that is otherwise its legal liability; and (c) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) and (b) above (Section 1.1).
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If an Event of Default with respect to the Debt Securities of any series
(other than an Event of Default described in (vii) of the preceding paragraph)
occurs and is continuing, either the Trustee or the holders of at least 25% in
principal amount of the outstanding Debt Securities of such series by written
notice as provided in the Indenture may declare the principal amount (or such
lesser amount as may be provided for in the Debt Securities of such series) of
all outstanding Debt Securities of such series to be due and payable immediately
(Section 5.2). At any time after a declaration of acceleration has been made,
but before a judgment or decree for payment of money has been obtained by the
Trustee, and subject to applicable law and certain other provisions of the
Indenture, the holders of a majority in aggregate principal amount of the Debt
Securities of such series may, under certain circumstances, rescind and annul
such acceleration (Section 5.2). An Event of Default described in (vii) of the
preceding paragraph shall cause the principal amount and accrued interest (or
such lesser amount as provided for in the Debt Securities of such series) to
become immediately due and payable without any declaration or other act by the
Trustee or any holder (Section 5.2).
The Indenture provides that, within 90 days after the occurrence of any
event which is, or after notice or lapse of time or both would become, an Event
of Default thereunder with respect to the Debt Securities of any series (a
"default"), the Trustee shall transmit, in the manner set forth in the
Indenture, notice of such default to the holders of the Debt Securities of such
series unless such default has been cured or waived; provided, however, that
except in the case of a default in the payment of principal of, or premium, if
any, or interest, if any, on, or Additional Amounts or any sinking fund or
purchase fund installment with respect to, any Debt Security of such series, the
Trustee may withhold such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the best interest of the holders of Debt Securities of such series;
and provided, further, that in the case of any default of the character
described in (v) of the second preceding paragraph, no such notice to holders
will be given until at least 30 days after the occurrence thereof (Section 6.2).
If an Event of Default occurs and is continuing with respect to the Debt
Securities of any series, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of Debt Securities of such
series by all appropriate judicial proceedings (Section 5.3).
The Indenture provides that, subject to the duty of the Trustee during any
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of Debt Securities, unless such
holders shall have offered to the Trustee reasonable indemnity (Section 6.1).
Subject to such provisions for the indemnification of the Trustee, and subject
to applicable law and certain other provisions of the Indenture, the holders of
a majority in aggregate principal amount of the outstanding Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Debt Securities
of such series (Section 5.12).
Under the Indenture, the Issuer is required to furnish the Trustee annually
a statement as to performance by the Issuer of certain of its obligations under
the Indenture and as to any default in such performance (Section 7.4). The
Issuer is also required to deliver to the Trustee, within five days after
occurrence thereof, written notice of any Event of Default or any event which
after notice or lapse of time or both would constitute an Event of Default
(Section 10.9).
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Issuer and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Debt Securities of each series
affected thereby; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Debt Security affected
thereby, (i) change the Stated Maturity (except as otherwise permitted in the
Indenture in connection with Debt Securities for which the Stated Maturity is
extendible) of the principal of, or any premium or installment of interest on,
or any Additional Amounts with respect to, any Debt Security, (ii) reduce the
principal amount of, or the rate (or
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modify the calculation of such rate) of interest (except as otherwise permitted
in the Indenture in connection with Debt Securities for which the interest rate
may be reset) on, or any Additional Amounts with respect to, or any premium
payable upon the redemption of, any Debt Security, (iii) change the obligation
of the Issuer to pay Additional Amounts with respect to any Debt Security or
reduce the amount of the principal of an Original Issue Discount Security that
would be due and payable upon a declaration of acceleration of the Maturity
thereof or the amount thereof provable in bankruptcy, (iv) change the redemption
provisions of any Debt Security or adversely affect the right of repayment at
the option of any holder of any Debt Security, (v) change the place of payment
or the coin or currency in which the principal of, any premium or interest on or
any Additional Amounts with respect to any Debt Security is payable, (vi) impair
the right to institute suit for the enforcement of any payment on or after the
Stated Maturity of any Debt Security (or, in the case of redemption, on or after
the Redemption Date or, in the case of repayment at the option of any holder, on
or after the date for repayment), (vii) reduce the percentage in principal
amount of the outstanding Debt Securities, the consent of whose holders is
required in order to take certain actions, (viii) reduce the requirements for
quorum or voting by holders of Debt Securities in Section 15.4 of the Indenture,
(ix) modify any of the provisions in the Indenture regarding the waiver of past
defaults and the waiver of certain covenants by the holders of Debt Securities
except to increase any percentage vote required or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the holder of each Debt Security affected thereby, (x) make any change that
adversely affects the right to convert or exchange any Debt Security into or for
common stock of the Issuer or other securities in accordance with its terms, or
(xi) modify any of the above provisions (Section 9.2).
The holders of at least a majority in aggregate principal amount of the
Debt Securities of any series may, on behalf of the holders of all Debt
Securities of such series, waive compliance by the Issuer with certain
restrictive provisions of the Indenture (Section 10.8). The holders of not less
than a majority in aggregate principal amount of the outstanding Debt Securities
of any series may, on behalf of the holders of all Debt Securities of such
series, waive any past default and its consequences under the Indenture with
respect to the Debt Securities of such series, except a default (a) in the
payment of principal of (or premium, if any), any interest on or any Additional
Amounts with respect to Debt Securities of such series or (b) in respect of a
covenant or provision of the Indenture that cannot be modified or amended
without the consent of the holder of each Debt Security of any series (Section
5.13).
The Indenture also contains provisions permitting the Issuer and the
Trustee, without the consent of any holders of Debt Securities under such
Indenture, to enter into supplemental indentures, in form satisfactory to the
Trustee, for any of the following purposes: (i) to evidence the succession of
another corporation to the Issuer and the assumption by such successor of the
obligations and covenants of the Issuer contained in the Indenture and in the
Debt Securities; (ii) to add to the covenants of the Issuer, for the benefit of
the holders of all or any series of Debt Securities issued under the Indenture
(and if such covenants are to be for the benefit of less than all series of Debt
Securities issued under the Indenture, stating that such covenants are expressly
being included solely for the benefit of such series), or to surrender any right
or power herein conferred upon the Issuer; (iii) to add any additional Events of
Default (and if such Events of Default are to be applicable to less than all
series of Debt Securities issued under the Indenture, stating that such Events
of Default are expressly being included solely to be applicable to such series);
(iv) to add or change any of the provisions of the Indenture to such extent as
shall be necessary to permit or facilitate the issuance of Debt Securities in
bearer form, registrable or not registrable as to principal, and with or without
interest coupons; (v) to change or eliminate any of the provisions of the
Indenture, provided that any such change or elimination shall become effective
only when there is no Debt Security outstanding of any series created prior to
the execution of such supplemental indenture which is entitled to the benefit of
such provision; (vi) to establish the form or terms of Debt Securities of any
series as otherwise permitted by the Indenture; (vii) to evidence and provide
for the acceptance of appointment under the Indenture by a successor Trustee
with respect to the Debt Securities of one or more series issued under the
Indenture and to add to or change any of the provisions of the Indenture as
shall be necessary to provide for or facilitate the administration of the trusts
thereunder by more than one Trustee, pursuant to the requirements of the
Indenture; (viii) to secure the Debt Securities issued under the Indenture; (ix)
to cure any ambiguity, to correct or supplement any provision in such Indenture
which may be defective or inconsistent with any other provision of the
Indenture, or to make any other provisions with
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<PAGE> 139
respect to matters or questions arising under the Indenture which shall not be
inconsistent with any provision of the Indenture, provided such other provisions
shall not adversely affect the interests of the holders of Debt Securities of
any series issued under the Indenture in any material respect; or (x) to modify,
eliminate or add to the provisions of the Indenture to such extent as shall be
necessary to effect the qualification of the Indenture under the TIA or under
any similar federal statute subsequently enacted and to add to the Indenture
such other provisions as may be expressly required under the TIA (Section 9.1).
The Indenture provides that in determining whether the holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 3.1 of the Indenture, and (iv) Debt Securities owned by the Issuer or
any other obligor upon the Debt Securities or any Affiliate of the Issuer or of
such other obligor shall be disregarded (Section 1.1).
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series (Section 15.1). A meeting may be called at any time
by the Trustee, and also, upon request, by the Company or the holders of at
least 10% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided in the Indenture (Section 15.2).
Except for any consent that must be given by the holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the Outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 15.4).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
15.4).
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<PAGE> 140
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may discharge certain obligations to holders of any series of
Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
depositing with the Trustee, in trust, funds in U.S. dollars or in the Foreign
Currency in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities with respect to principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Maturity thereof, as the case
may be (Section 4.1).
The Indenture provides that, unless the provisions of Section 4.2 thereof
are made inapplicable to the Debt Securities of or within any series pursuant to
Section 3.1 thereof, the Issuer may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for, among other things, the obligation to pay Additional Amounts, if
any, upon the occurrence of certain events of taxation, assessment or
governmental charge with respect to payments on such Debt Securities and other
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency with respect to such Debt Securities and to hold
moneys for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under the covenants described
under "Consolidation, Merger and Transfer of Assets" above or, if provided
pursuant to Section 3.1 of the Indenture, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance"). Defeasance or covenant defeasance, as the case may be,
shall be conditioned upon the irrevocable deposit by the Company with the
Trustee, in trust, of an amount in U.S. dollars or in the Foreign Currency in
which such Debt Securities are payable at Stated Maturity, or Government
Obligations (as defined below), or both, applicable to such Debt Securities
which through the scheduled payment of principal and interest in accordance with
their terms will provide money in an amount sufficient to pay the principal of
(and premium, if any) and interest on such Debt Securities on the scheduled due
dates therefor (Section 4.2).
Such a trust may only be established if, among other things, (i) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Issuer is a party or by which it is bound,
(ii) no Event of Default or event which with notice or lapse of time or both
would become an Event of Default with respect to the Debt Securities to be
defeased shall have occurred and be continuing on the date of establishment of
such a trust and, with respect to defeasance only, at any time during the period
ending on the 123rd day after such date and (iii) the Issuer has delivered to
the Trustee an Opinion of Counsel (as specified in the Indenture) to the effect
that the holders of such Debt Securities will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such Opinion of Counsel,
in the case of defeasance, must refer to and be based upon a letter ruling of
the Internal Revenue Service received by the Issuer, a Revenue Ruling published
by the Internal Revenue Service or a change in applicable U.S. federal income
tax law occurring after the date of the Indenture (Section 4.2).
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the ECU, issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments (Section 1.1).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government or the governments in the
confederation which issued the Foreign Currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government or governments, in each case where the timely payment or
payments thereunder are unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government or
governments, and which, in the case of clause (i) or (ii), are
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<PAGE> 141
not callable or redeemable at the option of the issuer or issuers thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of or any other amount with respect to any such
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian with
respect to the Government Obligation or the specific payment of interest on or
principal of or any other amount with respect to the Government Obligation
evidenced by such depository receipt (Section 1.1).
If after the Issuer has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 3.1 of the Indenture or the terms of such Debt
Security to receive payment in a currency other than that in which such deposit
has been made in respect of such Debt Security or (b) a Conversion Event (as
defined below) occurs in respect of the Foreign Currency in which such deposit
has been made, the indebtedness represented by such Debt Security shall be
deemed to have been, and will be fully discharged and satisfied through the
payment of the principal of (and premium, if any) and interest if any, on such
Debt Security as such Debt Security becomes due out of the proceeds yielded by
converting the amount or other properties so deposited in respect of such Debt
Security into the currency in which such Debt Security becomes payable as a
result of such election or such Conversion Event based on (x) in the case of
payments made pursuant to clause (a) above, the applicable market exchange rate
for such currency in effect on the second business day prior to such payment
date, or (y) with respect to a Conversion Event, the applicable market exchange
rate for such Foreign Currency in effect (as nearly as feasible) at the time of
the Conversion Event (Section 4.2).
"Conversion Event" means the cessation of use of (i) a Foreign Currency
other than the ECU both by the government of the country or the confederation
which issued such Foreign Currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Union or (iii) any currency unit or composite currency other than the ECU for
the purposes for which it was established. All payments of principal of (and
premium, if any) and interest on any Debt Security that are payable in a Foreign
Currency that ceases to be used by the government or confederation of issuance
shall be made in U.S. dollars (Section 1.1).
In the event the Issuer effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than an Event of Default with
respect to Sections 10.5 and 10.6 of the Indenture (which Sections would no
longer be applicable to such Debt Securities after such covenant defeasance) or
with respect to any other covenant as to which there has been covenant
defeasance, the amount in such Foreign Currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of the Stated
Maturity but may not be sufficient to pay amounts due on such Debt Securities at
the time of the acceleration resulting from such Event of Default. However, the
Issuer would remain liable to make payment of such amounts due at the time of
acceleration.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for individual
certificates evidencing Debt Securities in definitive form represented thereby,
a Global Security may not be transferred except as a whole by the Depository for
such Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
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<PAGE> 142
The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series.
BEARER SECURITIES
The Issuer also may offer from time to time Debt Securities in bearer form
("Bearer Securities") outside the United States at varying prices and terms.
Such offerings of Bearer Securities may be separate from, or simultaneous with,
offerings of registered Securities in the United States. The Bearer Securities
are not offered by this Prospectus and may not be purchased by U.S. persons
other than foreign branches of certain U.S. financial institutions. For purposes
of this Prospectus, "U.S. person" means a citizen, national or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust which is subject to United States income taxation
regardless of its source of income.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Trustee is permitted to engage in other transactions with the Issuer
and its subsidiaries and affiliates from time to time provided that if the
Trustee acquires any conflicting interest it must eliminate such conflict upon
the occurrence of an Event of Default, or else resign. The Trustee also acts as
trustee under the indenture relating to the Parent Notes.
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<PAGE> 143
PLAN OF DISTRIBUTION
The Issuer may sell the Debt Securities being offered hereby: (i) through
one or more underwriters or dealers; (ii) through agents; (iii) directly to a
limited number of purchasers or to a single purchaser; or (iv) through a
combination of any such methods of sale. Such underwriters, agents or dealers
may include, and may include a group of underwriters managed by, one or more of
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch & Co."), Chase Securities Inc., NationsBank Capital Markets,
Inc. and Smith Barney Inc. The Prospectus Supplement with respect to each series
of Debt Securities will set forth the terms of the offering of the Debt
Securities of such series, including the name or names of any underwriters,
dealers or agents, the purchase price of such Debt Securities, the proceeds to
the Issuer from such sale, any underwriting discounts and other items
constituting underwriters' compensation or agents' commissions, any initial
public offering price, any discounts or concessions allowed or reallowed or paid
to dealers, and any securities exchanges on which the Debt Securities of such
series may be listed. Only underwriters or agents named in the Prospectus
Supplement are deemed to be underwriters or agents in connection with the Debt
Securities offered hereby.
If one or more underwriters are used in the sale, the Debt Securities will
be acquired by such underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price, or at varying prices determined at the time of
sale. The Debt Securities may be offered to the public through underwriting
syndicates represented by managing underwriters or by one or more underwriters
without a syndicate. Unless otherwise set forth in the Prospectus Supplement,
the obligations of the underwriters to purchase Debt Securities will be subject
to certain conditions precedent and the underwriters will be obligated to
purchase all the Debt Securities of a series if any are purchased. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
The Debt Securities may be sold directly by the Issuer or through agents
designated by the Issuer from time to time. Any agent involved in the offer or
sale of the Debt Securities in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Issuer to such agent will be
set forth, in the Prospectus Supplement or any supplement thereto. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be acting
on a reasonable efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Issuer will authorize
agents, underwriters or dealers to solicit offers by certain specified entities
to purchase Debt Securities from the Issuer at the public offering price set
forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Issuer. The obligations of any purchaser under such contracts will be
subject to the condition that the purchase of the offered Debt Securities shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity of performance of such
contracts.
Agents and underwriters may from time to time purchase and sell Debt
Securities in the secondary market, but are not obligated to do so, and there
can be no assurance that there will be a secondary market for the Debt
Securities or that there will be liquidity in the secondary market if one
develops. From time to time, agents and underwriters may, but are not obligated
to, make a market in the Debt Securities.
Agents and underwriters may be entitled under agreements entered into with
the Issuer to indemnification by the Issuer against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to contribution with
respect to payments which the agents or underwriters may be required to make in
respect thereof.
Agents and underwriters may be customers of, engage in transactions with or
perform services for, the Issuer or its affiliates in the ordinary course of
business. The Issuer has entered into an arrangement in the ordinary course of
business with an affiliate of Merrill Lynch & Co. to sell to such affiliate, and
provide
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<PAGE> 144
ongoing lending services and subservicing for, certain mortgage loans originated
by the Issuer. An affiliate of Merrill Lynch & Co. is also a lender under the
Revolving Loans. Smith Barney Inc. currently owns beneficially 97,138 shares of
Common Stock of the Parent, representing approximately 0.229% of the total
outstanding capital stock of the Parent. Chase Securities Inc. ("CSI") is an
affiliate of Chase, which is administrative agent and a lender under the Bank
Credit Agreement, and a lender under the Revolving Loans. CSI, Chase and/or
certain of their affiliates have engaged in and may in the future engage in
general financing and banking transactions with the Issuer and certain of its
subsidiaries and affiliates in the ordinary course of business. An affiliate of
CSI owns approximately a one percent interest in Thomas H. Lee Equity Fund III,
L.P., which together with certain of its affiliates, owns more than 10% of the
Parent's Common Stock. In addition, NationsBank Capital Markets, Inc. is an
affiliate of NationsBank, a lender under the Bank Credit Agreement.
The place and time of delivery for the Debt Securities of any series in
respect of which this Prospectus is delivered are set forth in the accompanying
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby will be
passed upon for the Issuer by Hutchins, Wheeler & Dittmar, A Professional
Corporation, Boston, Massachusetts and for any underwriters or agents by Brown &
Wood LLP, New York, New York.
EXPERTS
The consolidated balance sheets of BancBoston Mortgage Corporation, as of
December 31, 1995 and 1994 and the related consolidated statements of operations
and retained earnings and cash flows for each of the three years in the period
ended December 31, 1995, included in this Prospectus, have been audited by
Coopers & Lybrand L.L.P., independent accountants, as indicated in their report
with respect thereto, and is included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
The consolidated balance sheets of Barnett Mortgage Company and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1995, included in this Prospectus,
and the related financial statement schedule included elsewhere in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and is included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated statements of financial condition of BancPLUS Financial
Corporation and subsidiary as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended, included in this Prospectus, and the related financial
statement schedules included elsewhere in the Registration Statement, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report included herein. In that report, that firm states that with respect to a
certain subsidiary, Honolulu Mortgage Company, Inc., its opinion is based on the
report of other independent auditors, namely Ernst & Young LLP. The financial
statements referred to above have been included herein in reliance upon the
authority of those firms as experts in accounting and auditing in giving said
reports.
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<PAGE> 145
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
HOMESIDE LENDING, INC.
Unaudited Consolidated Balance Sheet at November 30, 1996.................................. F-2
Unaudited Consolidated Statement of Income and Retained Earnings for the Three Months Ended
November 30, 1996 and the Period March 16, 1996 through November 30, 1996................ F-3
Unaudited Consolidated Statement of Cash Flows for the Period March 16, 1996 through
November 30, 1996........................................................................ F-4
Notes to Unaudited Consolidated Financial Statements....................................... F-5
HOMESIDE LENDING, INC.
Unaudited Pro Forma Consolidated Financial Information..................................... F-16
Unaudited Pro Forma Consolidated Income Statement for the Period March 16, 1996 to November
30, 1996................................................................................. F-17
Unaudited Pro Forma Consolidated Income Statement for the Year Ended December 31, 1995..... F-19
BANCBOSTON MORTGAGE CORPORATION (ACQUIRED BY HOMESIDE, INC. ON MARCH 15, 1996 AND NOW KNOWN
AS HOMESIDE LENDING, INC.)
Consolidated Balance Sheets at December 31, 1995 and March 15, 1996........................ F-24
Consolidated Statements of Income and Retained Earnings (Deficit) for the Quarter Ended
March 31, 1995 and the Period January 1, 1996 through March 15, 1996..................... F-25
Consolidated Statements of Cash Flows for the Quarter Ended March 31, 1995 and the Period
January 1, 1996 through March 15, 1996................................................... F-26
Notes to Consolidated Financial Statements................................................. F-27
BARNETT MORTGAGE COMPANY (ACQUIRED BY HOMESIDE, INC. ON MAY 31, 1996 AND NOW KNOWN AS
HOMESIDE HOLDINGS, INC.)
Consolidated Statements of Operations for the Period April 1, 1996 to May 30, 1996, the
Period January 1, 1996 to May 30, 1996 and the Three and Six Months Ended June 30,
1995..................................................................................... F-29
Consolidated Statements of Cash Flows for the Period January 1, 1996 to May 30, 1996 and
the Six Months Ended June 30, 1995....................................................... F-30
Notes to Consolidated Financial Statements................................................. F-31
BANCBOSTON MORTGAGE CORPORATION (ACQUIRED BY HOMESIDE, INC. ON MARCH 15, 1996 AND NOW KNOWN
AS HOMESIDE LENDING, INC.)
Report of Independent Accountants.......................................................... F-32
Consolidated Balance Sheets at December 31, 1994 and 1995.................................. F-33
Consolidated Statements of Operations and Retained Earnings for the Years Ended December
31, 1993, 1994 and 1995.................................................................. F-34
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995..................................................................................... F-35
Notes to Consolidated Financial Statements................................................. F-37
BARNETT MORTGAGE COMPANY (ACQUIRED BY HOMESIDE, INC. ON MAY 31, 1996 AND NOW KNOWN AS
HOMESIDE HOLDINGS, INC.)
Report of Independent Certified Public Accountants......................................... F-52
Consolidated Balance Sheets at December 31, 1994 and 1995.................................. F-53
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995..................................................................................... F-54
Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 1993, 1994
and 1995................................................................................. F-55
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995..................................................................................... F-56
Notes to Consolidated Financial Statements................................................. F-57
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY (ACQUIRED BY BARNETT MORTGAGE COMPANY ON
FEBRUARY 28, 1995)
Independent Auditors' Report............................................................... F-69
Consolidated Statements of Financial Condition at December 31, 1993 and 1994............... F-70
Consolidated Statements of Operations for the Years Ended December 31, 1993 and 1994....... F-71
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993 and
1994..................................................................................... F-72
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and 1994....... F-73
Notes to Consolidated Financial Statements................................................. F-74
</TABLE>
F-1
<PAGE> 146
HOMESIDE LENDING, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-----------------
<S> <C>
ASSETS
Cash and cash equivalents............................................. $ 1,183
Mortgage loans held for sale, net..................................... 1,101,229
Mortgage servicing rights receivable, net............................. 1,321,639
Accounts receivable................................................... 173,145
Premises and equipment, net........................................... 29,221
Other assets.......................................................... 207,184
----------
Total Assets.......................................................... $2,833,601
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable to banks................................................ $2,010,813
Accounts payable and accrued liabilities.............................. 140,550
Deferred income taxes payable......................................... 103,624
Long term debt........................................................ 21,278
----------
Total Liabilities..................................................... 2,276,265
----------
Common stock:
Common stock, $1.00 par value, 100 shares authorized, issued and
outstanding, all pledged as a second priority pledge on
long-term debt of the Parent Company (Notes 1 and 7)............ --
Additional paid in capital............................................ 533,195
Retained earnings..................................................... 24,141
----------
Total Stockholder's Equity............................................ 557,336
----------
Total Liabilities and Stockholder's Equity............................ $2,833,601
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE> 147
HOMESIDE LENDING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE PERIOD FROM
MONTHS ENDED MARCH 16, 1996 TO
NOVEMBER 30, NOVEMBER 30,
1996 1996
------------- -----------------
<S> <C> <C>
REVENUES:
Mortgage servicing fees....................................... $ 90,492 $ 214,156
Amortization of mortgage servicing rights..................... (48,120) (104,315)
-------- ---------
Net servicing revenue.................................... 42,372 109,841
Interest income............................................... 25,241 60,230
Interest expense.............................................. (16,140) (46,416)
-------- ---------
Net interest revenue..................................... 9,101 13,814
Net mortgage origination revenue.............................. 16,521 43,604
Other income.................................................. 79 541
-------- ---------
Total revenue............................................ 68,073 167,800
EXPENSES:
Salaries and employee benefits................................ 20,650 53,307
Occupancy and equipment....................................... 3,337 8,267
Servicing losses on investor-owned loans...................... 4,957 12,953
Other expenses................................................ 11,391 28,932
-------- ---------
Total expenses........................................... 40,335 103,459
Income before income taxes.................................... 27,738 64,341
Income tax expense............................................ 11,373 26,380
-------- ---------
Net income.................................................... 16,365 37,961
Retained earnings at beginning of period...................... 21,596 --
Less: Dividends declared and paid to HomeSide, Inc............ (13,820) (13,820)
-------- ---------
Retained earnings at end of period............................ $ 24,141 $ 24,141
======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 148
HOMESIDE LENDING, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
MARCH 16, 1996 TO
NOVEMBER 30, 1996
-----------------
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income............................................................. $ 37,961
Amortization........................................................... 107,396
Depreciation........................................................... 3,178
Servicing losses on investor-owned loans............................... 12,953
Deferred income tax expense............................................ 26,380
Capitalized excess servicing rights.................................... (16,373)
Mortgage loans originated and purchased for sale....................... (9,081,815)
Proceeds and principal repayments of mortgage loans held for sale...... 8,853,510
Change in accounts receivable.......................................... (78,235)
Change in other assets and accounts payable and accrued liabilities.... (33,941)
-----------
Net cash used in operating activities.................................. (168,986)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of premises and equipment..................................... (3,354)
Acquisition of mortgage servicing rights............................... (344,288)
Net purchases of risk management contracts............................. (88,438)
Acquisition of BBMC, net of cash acquired.............................. (133,392)
Acquisition of BMC, net of cash acquired............................... (106,244)
-----------
Net cash used in investing activities.................................. (675,716)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowings from banks.............................................. 526,480
Payment of debt issue costs............................................ (12,773)
Repayment of long term debt............................................ (417)
Capital contribution from parent....................................... 346,415
Dividends paid to parent............................................... (13,820)
-----------
Net cash provided by financing activities.............................. 845,885
Net increase in cash................................................... 1,183
Cash and cash equivalents at beginning of period....................... --
-----------
Cash and cash equivalents at end of period............................. $ 1,183
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 149
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of HomeSide
Lending, Inc. ("HomeSide") have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
accordance with Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management of HomeSide, all
material adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
period from March 16, 1996 (date operations began) to November 30, 1996 and the
three months ended November 30, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ended February 28, 1997.
HomeSide is an indirect wholly-owned subsidiary of HomeSide, Inc. (the
"Parent") (see Note 2). The Parent has no operations and its only significant
assets are its investment in HHI, HomeSide and capitalized debt issuance costs.
The Parent has $200 million in outstanding long-term debt. All of the stock of
HomeSide is pledged as collateral on the debt of the Parent. The Parent is
dependent upon dividends from HHI and HomeSide for the cash flow to service the
Parent's debt.
The accompanying interim financial statements of HomeSide have been
prepared for the period March 16, 1996 to November 30, 1996 to coincide with the
commencement of operations of the Parent as discussed in "ORGANIZATION" below
and the end of the Parent's third fiscal quarter based on a February 28 year
end. The financial statements for the third quarter of fiscal 1997 include the
period September 1, 1996 to November 30, 1996.
References to the first quarter of fiscal 1997 relate to the period March
16, 1996 to May 31, 1996. References to the second quarter of fiscal 1997 relate
to the three months ended August 31, 1996. References to the third quarter of
fiscal 1997 relate to the three months ended November 30, 1996. Year to date
operating results include the period March 16, 1996 to November 30, 1996.
2. ORGANIZATION
On December 11, 1995, the Parent was formed by an investor group,
consisting of Thomas H. Lee Company and Madison Dearborn Partners (collectively,
the "Investors"), and signed a definitive stock purchase agreement with The
First National Bank of Boston ("Bank of Boston") for the purpose of acquiring
certain assets and liabilities of the mortgage banking business ("BBMC") owned
by Bank of Boston. HomeSide, Inc. is the parent company of HomeSide, which is
the primary operating entity. The BBMC transaction closed on March 15, 1996 and
HomeSide, Inc. began operations on March 16, 1996 through its operating
subsidiary, HomeSide.
On May 31, 1996, Barnett Banks, Inc. ("Barnett") sold certain of its
mortgage banking operations, primarily its servicing portfolio and proprietary
mortgage banking software systems, to the Parent. Barnett received cash and an
ownership interest in the Parent. For more information on these acquisitions see
Note 4.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-5
<PAGE> 150
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Risk Management of Mortgage Loan Originations
HomeSide has a risk management program in place to offset the risk that a
change in interest rates will result in a decrease in the value of HomeSide's
mortgage loan inventory and commitments to originate loans. To manage its
interest rate risk exposure, HomeSide enters into forward sales agreements and
purchases option contracts. These agreements and contracts are not considered
trading instruments and are primarily entered into for purposes of managing
interest rate risk relative to commitments to originate mortgage loans against
market value declines resulting from fluctuations in interest rates.
The cost of option contracts to manage HomeSide's fixed and variable rate
loan origination commitments are capitalized and amortized as an adjustment of
gain or loss on the sale of the loan over the life of the underlying option
contract. Unamortized premiums are included in other assets in the accompanying
consolidated balance sheet. HomeSide is not exposed to loss beyond its initial
outlay to acquire the option contract.
Risk Management of Mortgage Servicing Rights
Mortgage servicing rights are a significant asset of HomeSide and possess
economic value as they permit the owner to receive a portion of the interest
coupon from the mortgagor for performing specified servicing activities. Because
the underlying mortgage loan note permits the borrower to prepay the loan, the
value of the related servicing rights tends to diminish in periods of declining
interest rates and increase in value in periods of rising rates. This tendency
of the mortgage servicing rights portfolio to change in value with changes in
interest rates subjects HomeSide to substantial interest rate risk, which
directly affects the volatility of reported earnings as capitalized mortgage
servicing rights are carried at the lower of amortized cost or fair value. It is
the policy of HomeSide to mitigate this risk through its risk management
program.
Qualifying risk management instruments with a demonstrated ability to
mitigate this risk are used in this program. The risk management instruments
used by HomeSide have characteristics such that they tend to increase in value
as interest rates decline. Conversely, these risk management instruments tend to
decline in value as interest rates rise. Accordingly, changes in value of these
contracts will tend to move inversely with changes in value of HomeSide's
mortgage servicing rights.
To date, option contracts on U.S. Treasury bond futures have been purchased
to manage interest rate risk on HomeSide's mortgage servicing rights. These
option contracts are designated as hedges on the purchase date and such
designation must be at a level at least as specific as the level at which
mortgage servicing rights are evaluated for impairment. The option contracts are
marked-to-market with changes in market value deferred and recognized as an
adjustment to the cost of the related mortgage servicing right asset being
hedged. As a result, any changes in market value that are deferred are amortized
and evaluated for impairment in the same manner as the related mortgage
servicing rights. Correlation between changes in value of the option and changes
in the value of HomeSide's mortgage servicing rights is assessed on a quarterly
basis to ensure that high correlation is maintained over the term of the hedging
program.
At November 30, 1996, the carrying value of the risk management contracts
included in other assets was $162,351,000, the market value of the contracts.
Further, net gains on risk management contracts of $60,181,000 were deferred as
a component of mortgage servicing rights as of November 30, 1996. During the
third fiscal quarter, $133,348,000 of gains were deferred as a component of
mortgage servicing rights, which offset the deferred losses recorded as of the
end of the second fiscal quarter. Of the gains deferred during the third fiscal
quarter, $107,256,000 were realized. At any point in time, HomeSide's maximum
loss exposure on its option contracts is limited to the amount paid for such
contracts.
F-6
<PAGE> 151
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage loans
Mortgage loans held for sale are carried at the lower of aggregate cost or
fair value. Fair value is based on the contract prices at which the mortgage
loans will be sold or, if the loans are not committed for sale, the current
market price.
Loans are placed on non-accrual status when any portion of the principal or
interest is ninety days past due or earlier when concern exists as to the
ultimate collectibility of principal or interest. When loans are placed on
nonaccrual status, the related interest receivable is reversed against interest
income of the current period. Interest payments received on nonaccrual loans are
applied as a reduction of the principal balance when concern exists as to the
ultimate collection of principal; otherwise, such payments are recognized as
interest income. Loans are removed from nonaccrual status when principal and
interest become current and they are estimated to be fully collectible.
Mortgage servicing rights
Mortgage servicing rights are initially recorded at fair value as of their
date of acquisition or origination. Purchased mortgage servicing rights ("PMSR")
represent the value of rights to service mortgage loans originated by others.
Originated mortgage servicing rights ("OMSR") represent the value of mortgage
servicing rights associated with mortgage loans originated by HomeSide. OMSR are
capitalized in accordance with Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). Mortgage servicing
rights are amortized as a reduction of servicing fee income over the estimated
servicing period in proportion to the estimated future net cash flows from the
loans serviced.
SFAS 122 also requires that capitalized mortgage servicing rights be
evaluated for impairment based on the fair value of these rights. For purposes
of determining impairment, HomeSide's mortgage servicing rights are stratified
based on interest rate and type of loan (conventional/government). Impairment,
if any, is recognized through a valuation allowance for each impaired stratum
and included in the amortization of mortgage servicing rights.
Mortgage servicing rights also includes excess mortgage servicing
receivables ("EMSR"), which represent the present value of servicing fee income
in excess of a normal servicing fee. When loans are sold, the estimated excess
servicing is recognized as income and amortized over the estimated servicing
period in proportion to the estimated future aggregate net cash flows from the
loans serviced. Remaining asset balances are evaluated for impairment based on
current estimates of future discounted cash flows. Such write-downs are included
in amortization of mortgage servicing rights.
The following table presents a breakdown of the components of mortgage
servicing rights at November 30, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Mortgage servicing rights and excess servicing receivables....... $1,486,135
Deferred gains on risk management contracts, net................. (60,181)
----------
1,425,954
Less: Accumulated amortization................................... (104,315)
----------
$1,321,639
==========
</TABLE>
Accounts receivable
Accounts receivable includes advances, consisting primarily of payments for
property taxes and insurance premiums, as well as principal and interest
remitted to investors before they are collected from mortgagors, made in
connection with loan servicing activities. Accounts receivable also includes
loans purchased from
F-7
<PAGE> 152
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mortgage- backed securities serviced by HomeSide for others and mortgage claims
filed primarily with the FHA and the VA.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the estimated life of the improvement or the term of the lease.
Deferred Charges
Included in other assets are deferred charges of $10,297,000, representing
costs incurred to obtain a $2.5 billion line of credit from an independent
syndicate of banks. The deferred charges are being amortized to interest expense
over the term of the related line of credit (3 years).
Mortgage servicing fees
Mortgage servicing fees represent fees earned for servicing mortgage loans
owned by investors. The fees are generally calculated on the outstanding
principal balances of the loans serviced and are recognized as income on an
accrual basis.
Servicing losses on investor-owned loans
HomeSide records losses attributable to servicing FHA and VA loans for
investors. These amounts include actual losses for final disposition of loans,
accrued interest for which payment has been denied, and estimates for potential
losses based on HomeSide's experience as a servicer of government loans.
A reserve for estimated servicing losses on investor-owned loans is
available for potential losses related to the mortgage servicing portfolio and
is included in the balance of accounts payable and accrued liabilities.
Interest expense
Interest expense is reduced by credits received on borrowings with
depository institutions for custodial balances placed with such institutions.
Net mortgage origination revenue
Net mortgage origination revenue includes gains and losses from sales of
mortgage loans.
Income taxes
HomeSide accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
Statement, current tax liabilities or assets are recognized through charges or
credits to the current tax provision for the estimated taxes payable or
refundable for the current year.
Deferred tax liabilities are recognized for temporary differences that will
result in amounts taxable in the future and deferred tax assets are recognized
for temporary differences and tax benefit carryforwards that will result in
amounts deductible or creditable in the future. Net deferred tax liabilities or
assets are recognized through charges or credits to the deferred tax provision.
A deferred tax valuation reserve is established if it is more likely than not
that all or a portion of the deferred tax assets will not be realized. Changes
in the deferred tax valuation reserve are recognized through charges or credits
to the deferred tax provision.
The effect of enacted changes in tax law, including changes in tax rates,
on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date.
F-8
<PAGE> 153
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS
Acquisition of BancBoston Mortgage Corporation
On March 15, 1996, the Parent acquired from Bank of Boston all of the
outstanding stock of BBMC, which was subsequently renamed HomeSide Lending, Inc.
Certain assets and liabilities of BBMC were retained by Bank of Boston,
including BBMC's mortgage retail production operations in New England.
HomeSide made cash payments of $139,500,000 and issued $86,750,000 of
common stock of HomeSide, Inc. to Bank of Boston in consideration for certain
assets, net of assumed liabilities, and the stock of BBMC. On May 31, 1996,
HomeSide paid an additional $5,000,000 to Bank of Boston in connection with the
closing of the BMC acquisition. The transaction was accounted for under the
purchase method of accounting and, accordingly, the results of operations of
HomeSide are included from the date of purchase. The assets and liabilities of
BBMC were recorded by HomeSide at their fair values at March 15, 1996, which
totaled $1,525,314,000 and $1,221,808,000, respectively. The total purchase
price paid for BBMC, including transaction costs and interest, was $247,403,000.
The excess of fair value of net assets acquired over cost was $56,103,000 and
was allocated entirely to mortgage servicing rights. The excess is being
amortized over the estimated servicing period in proportion to the estimated
future net cash flows from the loans serviced, in the same manner as mortgage
servicing rights.
Acquisition of Barnett Mortgage Company
On May 31, 1996, the Parent acquired from Barnett certain assets, net of
assumed liabilities, and the outstanding common stock of BMC, which was
subsequently renamed HomeSide Holdings, Inc. (the "BMC Acquisition"). HomeSide
Holdings, Inc. then became the parent company of HomeSide Lending, Inc. and
transferred all of the assets and liabilities of HomeSide Holdings, Inc., with
the exception of certain portions of HomeSide Holdings, Inc.'s GNMA servicing
rights, to HomeSide Lending, Inc. Certain assets and liabilities of BMC were
retained by Barnett, including those assets of BMC and its subsidiaries (other
than Honolulu Mortgage Company, Inc.) associated with the loan origination or
production activities of such entities.
HomeSide made cash payments of $228,234,000 to Barnett in consideration for
certain assets, net of assumed liabilities, and the stock of BMC. In connection
with the BMC Acquisition, an affiliate of Barnett purchased 11,461,400 shares of
common stock of the Parent for an aggregate purchase price of $117,985,000. The
transaction was accounted for under the purchase method of accounting and,
accordingly, the results of operations of HomeSide include BMC from the date of
acquisition. The assets and liabilities of BMC were recorded by HomeSide at
their fair values at May 31, 1996, which totaled $764,825,000 and $516,129,000,
respectively. The total purchase price paid for BMC, including transaction costs
and interest, was $235,432,000. The excess of fair value of net assets acquired
over cost was $13,264,000 and was allocated entirely to mortgage servicing
rights. The excess is being amortized over the estimated servicing period in
proportion to the estimated future net cash flows from the loans serviced, in
the same manner as mortgage servicing rights.
The assets acquired and liabilities assumed in each of the transactions
noted above have been recorded at their estimated fair value as of the date of
the acquisition. Changes in those estimates may affect the amounts recorded and
the resulting allocation of purchase price.
F-9
<PAGE> 154
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Unaudited pro forma statements of operations for the year ended December
31, 1995 and the period from March 16, 1996 to November 30, 1996, assuming BBMC
and BMC had been acquired as of January 1, 1995, and assuming BMC had been
acquired as of March 15, 1996 are as follows (in millions):
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA PERIOD
DECEMBER 31, MARCH 16, 1996 TO
1995 NOVEMBER 30, 1996
----------- -----------------
<S> <C> <C>
Net servicing revenue.................. $ 235.1 $ 120.3
Net warehouse interest (expense)
revenue.............................. 17.9 17.8
Net mortgage origination revenue....... 0.7 44.6
Other income........................... 0.7 0.6
------- -------
Total revenues.................... 254.4 183.3
Expenses............................... (142.7) (116.2)
------- -------
Income before income taxes............. 111.7 67.1
Income tax expense..................... (45.7) (27.7)
------- -------
Net income........................ $ 66.0 $ 39.4
------- -------
</TABLE>
The purchase accounting adjustments in the above pro forma statements of
operations are based on the actual purchase price and the amount of assets
actually acquired. In addition, gains on sales of mortgage servicing rights are
not included in net servicing revenue in these pro forma results. No adjustments
have been made for restructuring costs that might have been incurred during the
periods presented or for cost efficiencies that might have been realized. In
addition, no adjustments have been made for the capital contributions received
from the Parent in connection with the Parent's offering of common stock to the
public in January 1997. Accordingly, these pro forma results are not indicative
of future results.
5. NOTES PAYABLE TO BANKS
HomeSide borrows funds on a demand basis from a syndicate of banks under a
$2.5 billion line of credit collateralized by substantially all of HomeSide's
assets and the servicing rights retained by HHI. The line of credit is used to
provide funds for HomeSide's business of making, originating, acquiring and
servicing mortgage loans. The line of credit includes both a warehouse credit
facility and servicing-secured credit facility, of which the servicing secured
facility is capped at $950 million. The line of credit terminates on May 31,
1999. The line of credit agreement contains covenants that impose limitations
and restrictions on HomeSide, including the maintenance of certain net worth and
ratio requirements. (See "Description of Bank Credit Agreement"). The amount of
the unused line of credit was $489,200,000 as of November 30, 1996.
Drawings under the line of credit bear interest at rates per annum, based
on, at HomeSide's option (A) the highest of (i) the lead bank's prime rate, (ii)
the secondary market rate of certificates of deposit plus 100 basis points, and
(iii) the federal funds rate in effect from time to time plus 0.5%, or (B) a
eurodollar rate. As of November 30, 1996, the weighted average interest rate on
the amounts borrowed was 5.98%.
On January 15, 1997, HomeSide entered into a short term credit facility
with The Chase Manhattan Bank in an aggregate principal amount of $85 million
(the "Chase Facility"). On March 14, 1997, HomeSide entered into a short term
credit facility with an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated in an aggregate principal amount of $35.0 million (the "Merrill
Facility") The Chase Facility and the Merrill Facility each expire on the
earlier of (i) April 1, 1997, or (ii) the consummation of the sale of the
Issuer's debt securities. Drawings under each facility bear interest at the
greater of (i) The Chase Manhattan Bank's prime rate, (ii) the secondary market
rate for certificates of deposit (grossed up for maximum statutory requirements)
plus 1%, and (iii) the federal funds effective rate from time to time plus 0.5%.
F-10
<PAGE> 155
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG TERM DEBT
HomeSide has a mortgage note payable on its headquarters building that is
due in 2017 and bears interest at 9.50%. HomeSide's main office building is
pledged as collateral. Principal payments due on the mortgage note payable are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
------------------------------------------------------------
<S> <C>
1997........................................................ $ 56
1998........................................................ 234
1999........................................................ 258
2000........................................................ 283
2001........................................................ 312
Thereafter.................................................. 12,481
-------
$13,624
=======
</TABLE>
7. LONG TERM DEBT OF PARENT AND TRANSACTIONS WITH AFFILIATES
On May 14, 1996, the Parent issued $200,000,000 of 11.25% notes ("Notes")
maturing on May 15, 2003 and paying interest semiannually in arrears on May 15
and November 15 of each year, commencing on November 15, 1996. The Notes are
redeemable at the option of the Parent, in whole or in part, at any time on or
after May 15, 2001, at certain pre-set redemption prices. The indenture contains
covenants that impose limitations and restrictions on HomeSide, including the
maintenance of certain net worth and ratio requirements. In addition, the Notes
are secured by the common stock of HomeSide, Inc. and the common stock of each
of its subsidiaries. In accordance with certain of these restrictions, effective
August 15, 1996, the interest rate on the Notes was increased to 11.75% until
the exchange notes discussed below were issued. The Company is in compliance
with all net worth and ratio requirements contained in the indenture relating to
the Notes.
The Notes were initially issued as part of a private placement offering.
The Parent filed a Form S-4 with the SEC to register notes, with terms identical
to the Notes, under the Securities Act of 1933 (such registered notes also
referred to herein as the "Notes"). The registration statement was declared
effective during October 1996. The exchange was completed on December 9, 1996.
The exchange notes are obligations of the Parent and are not included in
the consolidated financial statements of HomeSide. However, ultimate repayment
of principal and interest on the notes is dependent on the cash flows of
HomeSide. During the period ended November 30, 1996, HomeSide funded $11,563,000
of interest payments on the Notes.
On February 5, 1997, the Parent issued 8,452,500 shares of its common stock
to the public at a price of $15.00 per share. The net proceeds from the offering
were used to repay $70 million of the Notes at a premium of $7.9 million. The
remaining $38.8 million of net proceeds were contributed to HomeSide as
additional capital and used to repay amounts outstanding under the Bank Credit
Agreement.
F-11
<PAGE> 156
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the period from March 16, 1996 to November 30, 1996, HomeSide paid
$13,820,000 in dividends to the Parent to enable the Parent to service the debt
and pay certain debt issuance costs. Total remaining debt service requirements
(principal and interest) of the Parent which must be funded by dividends
received from HomeSide (including pro forma requirements related to the
repayment of $70,000,000 in principal amount of Notes from the net proceeds of
the Parent's common stock offering) are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR HISTORICAL PRO FORMA
------------------------------------------------------------- ---------- ---------
<S> <C> <C>
1997......................................................... $ -- $ --
1998......................................................... 22,500 14,625
1999......................................................... 22,500 14,625
2000......................................................... 22,500 14,625
2001......................................................... 22,500 14,625
Thereafter................................................... 256,250 106,563
-------- --------
$ 346,250 $ 165,063
======== ========
</TABLE>
HomeSide fulfills servicing obligations on behalf of HHI with respect to
certain GNMA loans with an unpaid principal balance ("UPB") of approximately
$1.0 billion as of November 30, 1996. Since the acquisition of BMC on May 31,
1996, HomeSide allocates to HHI a portion of the servicing fee income it
receives based on the UPB of loans it services on behalf of HHI. HomeSide also
allocates to HHI a portion of the costs incurred to service the loans and fund
the related servicing rights. The allocation of income and expense to HHI did
not have a material impact on HomeSide's results of operations for the periods
presented.
8. STOCKHOLDER'S EQUITY
HomeSide's capital structure consists of 100 shares of authorized and
issued, $1.00 per share par value common stock which is wholly-owned by HomeSide
Holdings, Inc., a wholly-owned subsidiary of the Parent. The common stock of
HomeSide is pledged as security for the Parent Notes discussed in Note 7 of
Notes to Consolidated Financial Statements.
9. SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisitions of BBMC and BMC, HomeSide recorded
non-cash assets and assumed liabilities, including fair value adjustments, of
approximately $2,251,676,000 and $1,737,937,000, respectively.
HomeSide paid $46,117,000 and $1,000 of interest and income taxes,
respectively, during the period ended November 30, 1996.
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value.
Financial instruments include such items as mortgage loans held for sale,
mortgage loans held for investment, interest rate contracts, notes payable, and
other instruments.
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market
information. Where available, quoted market prices are used. In other cases,
fair values are based on estimates using other valuation techniques, such as
discounting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. These techniques involve uncertainties and
are significantly affected by the assumptions used and the judgments made
regarding risk characteristics of various financial instruments, prepayments,
discount rates, estimates of future cash flows, future suspected loss
experience, and other factors. Changes in assumptions could significantly affect
these estimates. Derived fair value estimates cannot be substantiated by
comparison to independent markets
F-12
<PAGE> 157
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and, in many cases, could not be realized in an immediate sale of the
instrument. Also because of differences in methodologies and assumptions used to
estimate fair value, HomeSide's fair values should not be compared to those of
other companies.
Under the Statement, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of HomeSide. For certain assets and
liabilities, the information required under the Statement is supplemented with
additional information relevant to an understanding of the fair value.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
Cash and cash equivalents
The carrying amount reported in the balance sheet approximates fair value.
Mortgage loans held for sale
Fair values are based on the estimated value at which the loans could be
sold in the secondary market. These loans are priced to be sold with servicing
rights retained, as is HomeSide's normal business practice.
Accounts receivable
Carrying amounts are considered to approximate fair value. All amounts that
are assumed to be uncollectible within a reasonable time are written off.
Risk management contracts
Fair values are estimated based on actual market quotes or option models.
Notes payable to banks
The carrying amount of the notes payable to banks reported in the balance
sheet approximates its fair value.
Long-term debt
Fair value of long-term debt is estimated by discounting estimated future
cash flows using a rate commensurate with the risks involved.
Commitments to originate mortgage loans
Fair value is estimated using quoted market prices for securities backed by
similar loans adjusted for differences in loan characteristics.
Forward contracts to sell mortgages
Forward contracts to sell mortgages, which represent legally binding
agreements to sell loans to permanent investors at a specified price or yield,
are valued using market prices for securities backed by similar loans and are
reflected in the fair values of the mortgages held for sale, to the extent that
these commitments relate to mortgage loans already originated, or of the related
commitments to extend credit.
Options on mortgage-backed securities
The fair values of options are estimated based on actual market quotes. In
some instances, quoted prices for the underlying loans or option models are
used.
F-13
<PAGE> 158
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value
The fair values of HomeSide's financial instruments as of November 30, 1996
are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 1,183 $ 1,183
Mortgage loans held for sale.................... 1,101,229 1,101,229
Accounts receivable............................. 173,145 173,145
Risk management contracts....................... 162,351 162,351
Other assets.................................... 44,833 44,833
LIABILITIES
Notes payable to banks.......................... 2,010,813 2,010,813
Long-term debt.................................. 21,278 21,278
OFF-BALANCE SHEET(1)
Commitments to originate mortgage loans......... -- 20,836
Mandatory forward contracts to sell mortgages... -- (19,954)
Options on mortgage-backed securities........... -- (391)
<FN>
- ---------------
(1) Parenthesis denote a liability
</TABLE>
Fair value estimates are made as of a specific point in time, based on
relevant market data and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale HomeSide's entire holding of a particular financial instrument. Because
no active market exists for some portion of HomeSide's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, current interest rates and prepayment
trends, risk characteristics of various financial instruments, and other
factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in any of these assumptions used in calculating fair value
would also significantly affect the estimates. Further, the fair value estimates
were calculated as of November 30, 1996. Changes in market interest rates and
prepayment assumptions could significantly change the fair value.
11. RISK MANAGEMENT OF FINANCIAL INSTRUMENTS
As discussed in Note 3, HomeSide purchases options contracts on U.S.
Treasury bond futures to manage the interest rate risk related to the value of
HomeSide's mortgage servicing rights. A summary of HomeSide's investments in
purchased option instruments as of November 30, 1996 is as follows:
<TABLE>
<S> <C>
Notional amount of U.S. Treasury bond future options........... $3.5 billion
Fair value of outstanding options.............................. $162.4 million
</TABLE>
Cash requirements for HomeSide's option contracts are limited to the
initial premium paid. The amount of contracts purchased depends on certain
factors, such as interest rates and growth in the mortgage servicing portfolio.
HomeSide is subject to market risk to the extent that interest rates fluctuate;
however, the purpose of the option contracts is to hedge the value of its
mortgage servicing rights portfolio, which tends to react inversely with changes
in the value of HomeSide's option contracts. HomeSide's credit risk on its
option contracts is limited since the option contracts are traded on a national
exchange, which guarantees performance by the counterparty.
F-14
<PAGE> 159
HOMESIDE LENDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CONTINGENCIES
HomeSide, along with its parent, is a defendant in a number of legal
proceedings arising in the normal course of business. HomeSide, in management's
estimation, has recorded adequate reserves in the financial statements for
pending litigation. Management, after reviewing all actions and proceedings
pending against or involving HomeSide, considers that the aggregate liabilities
or loss, if any, resulting from the final outcome of these proceedings will not
have a material effect on the financial position, operations or liquidity of
HomeSide.
For five years following the consummation of the BMC Acquisition, which
occurred on May 31, 1996, Barnett is obligated to repurchase or reimburse
HomeSide for any credit losses related to $101.0 million of loans serviced with
recourse, which is less than 1.0% of HomeSide's total mortgage servicing
portfolio.
13. SUBSEQUENT EVENTS
In February 1997, HomeSide filed a Shelf Registration Statement in
connection with a public offering of various debt securities. The proceeds from
the issuance of such securities, if drawn upon, will be used to fund HomeSide's
operations and to repay outstanding indebtedness of HomeSide.
On February 5, 1997, the Parent issued 8,452,500 shares of its Common Stock
to the public at a price of $15.00 per share. A portion of the net proceeds from
the Offering was used to repay $70 million of the Parent's $200 million 11.25%
notes at a premium of $7.9 million. The remaining net proceeds of $38.8 million
was contributed to HomeSide as additional capital and was used to repay
borrowings under the Bank Credit Facility.
F-15
<PAGE> 160
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information set forth below
which is based upon management's assumptions and includes adjustments as
described in the notes which follow, should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Prospectus. The Unaudited Pro Forma Consolidated Income Statement set forth
below gives effect to the HLI Acquisition and the HHI Acquisition as though such
transactions occurred on January 1, 1995. In addition, the unaudited
consolidated financial information gives effect to the offering of Common Stock
to the public by the Parent as if such transaction occurred on March 16, 1996.
Results of operations for the period March 16, 1996 to November 30, 1996 include
the period March 16, 1996 to November 30, 1996 for HomeSide and the period April
1, 1996 to May 30, 1996 for HHI. Results of operations for the year ended
December 31, 1995 include the results of HLI and HHI for the twelve months ended
December 31, 1995. Results of operations for the period ended November 30, 1996
reflect the consummation of such offering and the application of the proceeds
thereof as if such transactions had occurred on March 16, 1996. The unaudited
pro forma consolidated financial information does not purport to represent the
results that actually would have occurred if the acquisition of HLI or the
acquisition of HHI had in fact occurred as of the dates and is not intended to
project HomeSide's financial position or results of operations that may be
achieved for any future period.
F-16
<PAGE> 161
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD MARCH 16, 1996 TO NOVEMBER 30, 1996(a)
(IN MILLIONS)
<CAPTION>
PRO FORMA
HOMESIDE HHI HHI ACQUISITION CAPITAL HOMESIDE AND
HISTORICAL(a) HISTORICAL(a) ADJUSTMENTS(b) CONTRIBUTION(c) HHI
------------- ------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Mortgage servicing fees...... $ 214.1 $20.6 $ (0.8)(d) $ -- $ 233.9
Amortization of mortgage
servicing rights.......... (104.3) (8.3) (1.0)(e) -- (113.6)
------- ----- ------ ---- -------
Net servicing
revenue............ 109.8 12.3 (1.8) -- 120.3
Interest income.............. 60.2 4.9 1.7(f) -- 66.8
Interest expense............. (46.4) (3.5) 0.9(f) 1.7(m) (47.3)
------- ----- ------ ---- -------
Net interest
revenue............ 13.8 1.4 2.6 -- 19.5
Net mortgage origination
revenue................... 43.6 5.0 (4.0)(g) -- 44.6
Other income................. 0.6 0.7 (0.7)(h) -- 0.6
------- ----- ------ ---- -------
Total revenue........ 167.8 19.4 (3.9) 1.7 185.0
Expenses:
Salaries and employee
benefits.................. 53.3 10.4 (5.5)(i) -- 58.2
Occupancy and equipment...... 8.3 1.6 (1.2)(j) -- 8.7
Servicing losses on investor-
owned loans............... 12.9 -- -- -- 12.9
Other expenses............... 28.9 12.2 (4.7)(k) -- 36.4
------- ----- ------ ---- -------
Total expenses....... 103.4 24.2 (11.4) -- 116.2
Income before income taxes..... 64.4 (4.8) 7.5 1.7 68.8
Income tax expense............. 26.4 (0.9) 2.2(l) 0.6(l) 28.3
------- ----- ------ ---- -------
Net income..................... $ 38.0 $(3.9) $ 5.3 $1.1 $ 40.5
======= ===== ====== ==== =======
- ---------------
(a) Reflects HomeSide's and HHI's historical consolidated financial statements
for the period March 16, 1996 to November 30, 1996 for HomeSide and for the
period April 1, 1996 to May 30, 1996 for HHI. Pro forma adjustments to the
historical financial statements have been completed in a manner consistent
with the calendar periods of the related financial statements of HomeSide
and HHI, respectively.
(b) Reflects pro forma adjustments related to the HHI Acquisition as if such
acquisition occurred on March 16, 1996. The adjustments reflect the
application of purchase accounting to the HHI Acquisition and, as a result,
the assets and liabilities have been adjusted to reflect the allocation of
the purchase price.
(c) On January 30, 1997, the Parent issued 8,452,500 shares of its common stock
to the public at a price of $15.00 per share. The net proceeds from the
offering were used to repay $70 million of the Parent's $200 million 11.25%
notes at a premium of $7.9 million. The remaining $38.8 million of net
proceeds was contributed to HomeSide as additional capital and used to
repay amounts outstanding under the Bank Credit Agreement. The pro forma
adjustments assume such offering occurred on March 16, 1996.
(d) In connection with the HHI Acquisition, all of the assets and liabilities
of HHI were transferred to HomeSide, with the exception of certain
servicing rights associated with GNMA loans retained by HHI. Mortgage
servicing fees were reduced $0.8 million for servicing income earned on the
loans not transferred. The income was earned during the period prior to
being acquired by the Parent.
(e) Amortization was increased by $1.5 million to reflect the allocation of the
HHI purchase price to mortgage servicing rights and reduced $0.5 million to
reflect amortization on mortgage servicing rights retained by HHI.
(f) In 1996, HHI sold loans held for sale as participations to an affiliate of
Barnett. The funding source was replaced with the Bank Credit Agreement.
Consequently, interest income was increased by $1.7 million to adjust for
interest income passed to the participations.
</TABLE>
F-17
<PAGE> 162
Interest expense was reduced by $0.8 million to reflect the Bank Credit
Agreement and $0.1 million to reflect the funding of mortgage servicing
rights retained by HHI.
Pro Forma interest expense is comprised of the following components:
<TABLE>
<S> <C>
Warehouse interest expense.......................................... $(34.1)
Interest credit on escrow deposits.................................. 30.1
Other interest expense
Servicing secured interest expense................................ (20.0)
Other interest expense............................................ (2.7)
------
Total other interest expense........................................ (22.7)
------
Total interest expense.................................... $(26.7)
======
(g) Origination revenue of $4.0 million generated by the loan production units
retained by Barnett was eliminated.
(h) Barnett retained mortgage loans held for investment. The interest earned on
these loans of $0.7 million has been eliminated.
(i) Salaries and employee benefits of $5.5 million for mortgage loan production
units retained by Barnett were eliminated. The personnel associated with
these positions were retained by Barnett.
(j) Occupancy and equipment expenses of $1.2 million for loan production units
retained by Barnett have been eliminated. The assets and operations
associated with these functions were retained by Barnett.
(k) Expenses have been reduced for mortgage loan production units retained by
Barnett and certain mortgage servicing obligations retained by HHI. Other
expenses have been adjusted to reflect amortization of debt issuance costs.
</TABLE>
<TABLE>
<S> <C>
Decrease in other expenses for loan production units retained by
Barnett............................................................ $(3.8)
Decrease in other expenses for mortgage servicing obligations
retained by HHI.................................................... (0.2)
Elimination of goodwill amortization................................. (1.0)
Amortization of debt issuance costs.................................. 0.3
-----
Net decrease in other expenses............................. $(4.7)
=====
<FN>
(l) Adjusts income tax expense for HomeSide's expected effective income tax
rate.
(m) Reduces interest expense to reflect the repayment of certain amounts
outstanding under the BankCredit Agreement with proceeds received from the
Parent's common stock offering. The pro forma adjustment was based on the
assumed repayment of $38.8 million of borrowings at an average rate of
6.16% from March 16, 1996 to November 30, 1996.
</TABLE>
- ---------------
Note: Numbers may not total or agree to financial statements due to rounding.
F-18
<PAGE> 163
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HOMESIDE HOMESIDE FOR
HLI HLI FOR THE HLI HHI HLI THE HLI AND HHI
HISTORICAL(a) ACQUISITION(b) ACQUISITION HISTORICAL(a) ACQUISITION(c) ACQUISITIONS
------------- -------------- --------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Mortgage servicing fees....... $ 173.0 $ 173.0 $ 108.6 $ 14.8(m) $ 296.4
Gain on risk management
contracts................... 108.7 -- 108.7 -- --(n) 108.7
Amortization of mortgage
servicing rights............ (108.0) $ (7.7)(d) (115.7) (48.3) (6.0)(o) (170.0)
------- ------ ------- ------- ------ -------
Net servicing revenue......... 173.7 (7.7) 166.0 60.3 8.8 235.1
Interest income............... 24.3 5.4(e) 29.7 27.3 9.9(p) 66.9
Interest expense.............. (27.1) 1.7(f) (25.4) (20.4) (3.2)(q) (49.0)
------- ------ ------- ------- ------ -------
Net interest revenue.......... (2.8) 7.1 4.3 6.9 6.7 17.9
Net mortgage origination
revenue..................... 3.4 (2.9)(g) 0.5 3.2 (3.0)(r) 0.7
Gain on sales of servicing
rights...................... 10.2 (10.2)(h) -- 9.1 (9.1)(s) --
Other income.................. 0.5 -- 0.5 2.5 (2.3)(t) 0.7
------- ------ ------- ------- ------ -------
Total revenue................. 185.0 (13.7) 171.3 82.0 1.1 254.4
Expenses:
Salaries and employee
benefits.................... 45.4 (5.8)(i) 39.6 53.1 (21.5)(u) 71.2
Occupancy and equipment....... 10.0 (6.4)(j) 3.6 6.0 (4.2)(v) 5.4
Servicing losses on
investor-owned loans........ 10.0 -- 10.0 -- -- 10.0
Real estate acquired.......... 1.1 -- 1.1 -- -- 1.1
Other expenses................ 21.8 3.3(k) 25.1 52.9 (23.0)(w) 55.0
------- ------ ------- ------- ------ -------
Total expenses................ 88.3 (8.9) 79.4 112.0 (48.7) 142.7
Income before income tax
expense..................... 96.7 (4.8) 91.9 (30.0) 49.8 111.7
Income tax expense............ 37.9 (3.0)(l) 34.9 (9.6) 20.4(x) 45.7
------- ------ ------- ------- ------ -------
Net income.................... $ 58.8 $ (1.8) $ 57.0 $ (20.4) $ 29.4 $ 66.0(y)
======= ====== ======= ======= ====== =======
<FN>
- ---------------
(a) Reflects HLI's and HHI's historical consolidated income statements for the
year ended December 31, 1995 subject to certain reclassifications to
conform with the pro forma income statement presentation. For HHI,
amortization of goodwill and affiliate profit sharing amounts have been
reclassified to conform with this pro forma presentation.
(b) Reflects pro forma adjustments related to HomeSide's initial capitalization
and the HLI Acquisition, including related financing. The adjustments
reflect the application of purchase accounting to the HLI Acquisition and,
as a result, the assets and liabilities have been adjusted to reflect the
allocation of the purchase price.
(c) Reflects pro forma adjustments related to the HHI Acquisition. The
adjustments reflect the application of purchase accounting to the HHI
Acquisition and, as a result, the assets and liabilities have been adjusted
to reflect the allocation of the purchase price.
(d) Amortization of mortgage servicing rights was increased by $7.7 million to
reflect the allocation of the HLI purchase price to servicing rights.
(e) In 1995, HLI sold loans held for sale as participations to an affiliate of
Bank of Boston. This funding source was replaced with the Bank Credit
Agreement. Consequently, interest income has been increased by $13.3
million to adjust for interest income passed to the participations. Bank of
Boston retained mortgage loans held for investment. The interest earned on
these loans of $7.9 million has been eliminated.
</TABLE>
F-19
<PAGE> 164
(f) Reflects the Bank Credit Agreement and initial HomeSide capital structure.
The Bank Credit Agreement also replaced the funding of loans held for sale
as participations to an affiliate of Bank of Boston. Consequently, interest
expense has been increased by $10.3 million.
The income earned on the escrow deposit accounts associated with the loan
servicing portfolio reduces interest expense. Before the HLI Acquisition,
these deposits were held at Bank of Boston and earned a higher benefit than
would have been earned had they been held by an independent party.
Reduction of $2.6 million is based on the benefit that would have been
received from an independent party.
<TABLE>
<S> <C>
New Bank Credit Agreement and capital structure.............. $ 14.6
Participations to affiliate of Bank of Boston................ (10.3)
Reduced benefit from escrow deposits......................... (2.6)
------
$ 1.7
======
</TABLE>
Pro Forma interest expense is comprised of the following components:
<TABLE>
<S> <C>
Warehouse interest expense................................... $(24.8)
Interest credit on escrow deposits........................... 32.1
Other interest expense
Servicing secured interest expense......................... (31.3)
Other interest expense..................................... (1.4)
------
Total other interest expense................................. (32.7)
------
Total interest expense............................. $(25.4)
======
<FN>
(g) Mortgage origination revenue of $2.9 million generated by the branches
retained by Bank of Boston was eliminated.
(h) Mortgage servicing rights were adjusted to fair value as part of the
purchase accounting adjustments. Therefore no gain on sales would have been
recognized since the proceeds received on the sales would have been equal
to the cost basis of the mortgage servicing rights.
(i) The salaries and employee benefits incurred at the retail branches and the
loan processing center retained by Bank of Boston of $5.8 million have been
eliminated. The personnel associated with these positions were retained by
Bank of Boston.
(j) Occupancy expenses for the retail branches and the loan processing center
retained by Bank of Boston of $6.4 million have been eliminated. The assets
and operations associated with these functions were retained by Bank of
Boston.
(k) Reflects amortization of debt issuance costs of $3.6 million and
elimination of goodwill amortization of $0.3 million.
(l) Adjusts income tax expense for the HLI Acquisition and the Parent's equity
offering adjustments and HomeSide's expected effective rate.
(m) BancPLUS was acquired by HHI on February 28, 1995. Income for the period
January 1, 1995 through February 28, 1995 was added to reflect the period
BancPLUS was not owned by HHI. Also, servicing fee income was increased to
reflect the new agreement on servicing fee rates paid on Barnett's mortgage
loan portfolio.
In connection with the HHI Acquisition, all of the assets and liabilities
of HHI were transferred to HomeSide, with the exception of certain
servicing rights associated with GNMA loans retained by HHI. Mortgage
servicing fees were reduced $5.1 million for servicing income earned on
these loans during the year.
</TABLE>
<TABLE>
<S> <C>
Period BancPLUS not owned by HHI................................ $ 9.9
Servicing fee income............................................ 10.0
Servicing income on servicing retained by HHI................... (5.1)
-----
Net increase in mortgage servicing revenues................ $14.8
=====
</TABLE>
F-20
<PAGE> 165
(n) At HHI, risk management contracts were not in place throughout 1995 and no
gains were recognized in income to offset the decline in the value of the
mortgage servicing rights and accelerated amortization due to changes in
interest rates. No adjustments have been included to reflect the results of
a risk management program had one been in place at HHI. After the HHI
Acquisition, HomeSide extended its risk management practices to the
combined servicing portfolio.
(o) Amortization of mortgage servicing rights was increased to reflect the
period from January 1, 1995 through February 28, 1995 during which BancPLUS
was not owned by HHI. Amortization was also increased to reflect the
allocation of the HHI purchase price to mortgage servicing rights.
Amortization was decreased to reflect amortization on mortgage servicing
rights retained by HHI.
<TABLE>
<S> <C>
Amortization for BancPLUS during period not owned by HHI........ $(2.9)
Increased amortization.......................................... (5.9)
Amortization on mortgage servicing rights retained by HHI....... 2.8
-----
Net increase in amortization of mortgage servicing
rights................................................... $(6.0)
=====
<FN>
(p) In 1995, HHI sold loans held for sale as participations to an affiliate of
Barnett. This funding source will be replaced with the Bank Credit
Agreement. Consequently, interest income was increased to adjust for
interest income passed to the participations. Income for the period January
1, 1995 through February 28, 1995 was added to reflect the period BancPLUS
was not owned by BMC. Barnett is retaining mortgage loans held for
investment. The interest earned on these loans has been eliminated.
</TABLE>
<TABLE>
<S> <C>
Interest income on participations................................... $9.6
Period BancPLUS not owned by HHI.................................... 1.4
Elimination of interest income on mortgage loans held for
investment........................................................ 1.1
----
Net increase in warehouse interest income...................... $9.9
====
<FN>
(q) Reflects the Bank Credit Agreement and the initial HomeSide capital
structure as well as interest expense incurred to fund the mortgage
servicing rights retained by HHI.
Interest expense for the period January 1, 1995 through February 28, 1995
was added to reflect the period BancPLUS was not owned by BMC.
The income earned on the escrow deposit accounts associated with the loan
servicing portfolio reduces interest expense. Before the HHI Acquisition,
these deposits were held at Barnett and earned a higher benefit than would
have been earned had they been held by an independent party. Reduction of
$0.6 million is based on the benefit that would have been received from an
independent party.
</TABLE>
<TABLE>
<S> <C>
New Bank Credit Agreement and capital structure................ $(1.6)
Interest expense to fund mortgage servicing rights retained by
HHI........................................................... 0.9
Period BancPLUS not owned by HHI............................... (1.9)
Reduced benefit from escrow deposits........................... (0.6)
-----
$(3.2)
=====
</TABLE>
Pro Forma interest expense is comprised of the following components:
<TABLE>
<S> <C>
Warehouse interest expense........................................ $(40.9)
Interest credit on escrow deposits................................ 31.2
Servicing secured interest expense................................ (13.9)
------
Total interest expense....................................... $(23.6)
======
<FN>
(r) Origination revenue of $3.0 million generated by the loan production units
retained by Barnett was eliminated.
(s) Mortgage servicing rights were adjusted to fair value as part of the
purchase accounting adjustments. Because the proceeds received on the sales
would have been equal to the adjusted carrying value of the mortgage
servicing rights, no gain on sales would have been recognized.
</TABLE>
F-21
<PAGE> 166
(t) Other income of $2.3 million generated by the branches retained by Barnett
was eliminated.
(u) Salaries and employee benefits for the period January 1, 1995 through
February 28, 1995 were added to reflect the period BancPLUS was not owned
by HHI. Salaries and employee benefits for mortgage loan production units
retained by Barnett were eliminated.
<TABLE>
<S> <C>
Period BancPLUS not owned by HHI............................... $ 5.6
Decrease in salaries and employee benefits for loan production
units retained by Barnett..................................... (27.1)
------
Net decrease in salaries and employee benefits................. $(21.5)
======
<FN>
(v) Occupancy and equipment expenses of $4.2 million for loan production units
retained by Barnett have been eliminated.
(w) Expenses have been reduced for mortgage loan production units retained by
Barnett and certain mortgage servicing obligations retained by HHI. Other
expenses for the period January 1, 1995 through February 28, 1995 were
added to reflect the period BancPLUS was not owned by HHI. Other expenses
have been adjusted to reflect amortization of debt issuance costs and
amortization of goodwill.
</TABLE>
<TABLE>
<S> <C>
Decrease in other expenses for loan production units retained
by Barnett.................................................... $(25.8)
Decrease in expenses for certain mortgage servicing obligations
retained by HHI............................................... (1.4)
Period BancPLUS not owned by HHI -- other expenses............. 3.9
Amortization of debt issuance costs............................ 2.0
Adjustment to amortization of goodwill......................... (1.7)
------
Net decrease in other expenses............................ $(23.0)
======
<FN>
(x) Adjusts income tax expense for the HHI Acquisition and Offering Adjustments
and HomeSide's expected effective rate.
(y) The pro forma financial statements for the year ended December 31, 1995
have been prepared under the accounting policies used by HLI and HHI during
that period. Effective January 1, 1996, HLI and HHI prospectively adopted
SFAS 122, "Accounting for Mortgage Servicing Rights." This statement, among
other provisions, requires that the value of mortgage servicing rights
associated with mortgage loans originated by an entity be capitalized as
assets. The value of originated mortgage servicing rights (OMSR) is
determined by allocating the total costs of the mortgage loans between the
loans and the mortgage servicing rights based on their relative fair
values. Also, the new statement requires that capitalized mortgage
servicing rights be evaluated for impairment based on the fair value of
these rights. For purposes of determining impairment, mortgage servicing
rights that are capitalized after the adoption of this statement are
stratified based on one or more of the predominant risk characteristics of
the underlying loans. Impairment is recognized through a valuation
allowance for each impaired stratum.
Had this statement been adopted January 1, 1995, net mortgage origination
revenue would have increased by $10.6 million and $2.8 million for pro
forma HLI and pro forma HHI, respectively, for the effect on income of
recording OMSR. If these provisions of SFAS 122 were applied to the pro
forma financial statements for the year ended December 31, 1995, additional
amortization of mortgage servicing rights of $45.0 million and $10.0
million would have been recorded for pro forma HLI and pro forma HHI,
respectively, due to the interest rate environment during 1995. As a result
of the above adjustments, pro forma HomeSide for the HLI Acquisition and
the Offering net income would have been $27.8 million and pro forma
HomeSide for the HLI and HHI Acquisitions and the Offering net income would
have been $28.1 million for the year ended December 31, 1995.
</TABLE>
- ---------------
Note: Numbers may not total or agree to financial statements due to rounding.
F-22
<PAGE> 167
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-23
<PAGE> 168
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 15, 1996
----------------- --------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents..................................... $ 830 $ 23,216
Mortgage loans:
Held for sale............................................ 388,436 641,465
Held for investment...................................... 33,183 65,068
Accounts receivable........................................... 82,473 45,183
Accounts receivable from Bank of Boston and affiliates........ 343 --
Pool loan purchases........................................... 65,272 56,261
Mortgage claims receivable, net............................... 45,422 17,563
Mortgage servicing rights receivable, net..................... 533,891 522,469
Excess mortgage servicing rights receivable, net.............. 17,447 20,393
Accrued and deferred income taxes............................. 40,724 77,257
Real estate acquired.......................................... 2,627 2,797
Premises and equipment, net................................... 25,386 25,071
Other assets.................................................. 18,269 16,159
---------- ----------
Total assets.................................................. $1,254,303 $1,512,902
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Note payable to Bank of Boston................................ $ 966,000 $1,256,000
Accounts payable and accrued liabilities...................... 51,683 130,382
Accrued income taxes payable.................................. 36,213 --
Long term debt................................................ 13,816 13,790
---------- ----------
Total liabilities............................................. 1,067,712 1,400,172
---------- ----------
Common stock, $1 par value per share; 10,000 shares
authorized;
100 shares issued and outstanding........................... -- --
Additional paid in capital.................................... 156,666 156,666
Retained earnings (accumulated deficit)....................... 29,925 (43,936)
---------- ----------
Total stockholder's equity.................................... 186,591 112,730
---------- ----------
Total liabilities and stockholder's equity.................... $1,254,303 $1,512,902
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 169
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as
HomeSide Lending, Inc.)
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE QUARTER JANUARY 1, 1996
ENDED THROUGH
MARCH 31, 1995 MARCH 15, 1996
--------------- ----------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues:
Mortgage servicing fees..................................... $ 43,657 $ 38,977
Gain (loss) on hedge contracts.............................. 3,612 (128,795)
Amortization of mortgage servicing rights................... (23,103) (7,245)
--------- ----------
Net servicing revenue.................................. 24,166 (97,063)
Interest income............................................. 4,122 8,423
Interest expense............................................ (6,079) (10,089)
--------- ----------
Net interest revenue................................... (1,957) (1,666)
Net mortgage origination revenue............................ (1,083) 7,638
Gain on sale of servicing rights............................ 4,285 --
Other income................................................ 13 253
--------- ----------
Total revenue.......................................... 25,424 (90,838)
Expenses:
Salaries and employee benefits.............................. 11,696 10,287
Occupancy and equipment..................................... 2,358 2,041
Servicing losses on investor-owned loans.................... 733 5,560
Real estate acquired........................................ 218 291
Other expenses.............................................. 4,713 7,377
--------- ----------
19,718 25,556
Income (loss) before income taxes........................... 5,706 (116,394)
Income tax expense (benefit)................................ 2,277 (42,533)
--------- ----------
Net income (loss)........................................... 3,429 (73,861)
Retained (deficit) earnings at beginning of period.......... (28,901) 29,925
--------- ----------
Accumulated deficit at end of period........................ $ (25,472) $ (43,936)
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 170
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as
HomeSide Lending, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
QUARTER JANUARY 1, 1996
ENDED THROUGH
MARCH 31, 1995 MARCH 15, 1996
-------------- ---------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss).......................................... $ 3,429 $ (73,861)
Amortization............................................... 23,185 7,327
Depreciation............................................... 769 719
Servicing losses on investor-owned loans................... 733 5,560
Write down of real estate owned............................ 109 1,067
Gain (loss) on risk management contracts................... (3,612) 128,795
Loss on sale of mortgage servicing rights.................. (4,285) --
Capitalized excess mortgage servicing receivable........... 355 (3,967)
Mortgage loans originated and purchased for sale........... (426,918) (2,027,741)
Proceeds and principal repayments of mortgage loans held
for sale................................................. 627,155 1,774,712
Change in accounts receivable.............................. 394 37,633
Change in accrued and deferred income taxes................ (3,371) (72,746)
Change in pool loan purchases.............................. (2,269) 9,011
Change in mortgage claims receivable....................... 477 25,863
Change in other assets and accounts payable and accrued
liabilities.............................................. (18,578) 75,167
--------- -----------
Net cash provided by (used in) operating activities............. 197,573 (112,461)
--------- -----------
Cash flows used in investing activities:
Net origination of loans held for investment............... (71,908) (31,885)
Purchase of premises and equipment......................... (668) (404)
Purchase and origination of mortgage servicing rights...... (6,934) (60,171)
Proceeds from (purchase of) risk management contracts...... 3,262 (63,426)
Proceeds from sale of mortgage servicing rights............ 4,285 --
Proceeds from sale of real estate owned.................... 559 759
--------- -----------
Net cash used in investing activities........................... (71,404) (155,127)
--------- -----------
Cash flows (used in) provided by financing activities:
Net (repayments to) borrowings from Bank of Boston......... (130,522) 290,000
Repayment of long term debt................................ (46) (26)
--------- -----------
Net cash (used in) provided by financing activities........ (130,568) 289,974
--------- -----------
Net (decrease) increase in cash................................. (4,399) 22,386
Cash at beginning of period................................ 5,653 830
--------- -----------
Cash at end of period........................................... $ 1,254 $ 23,216
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................... $ 9,165 $ 9,211
========= ===========
Income taxes............................................... $ 5,648 $ 30,213
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 171
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BancBoston
Mortgage Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
audited consolidated financial statements of the Company for the year ended
December 31, 1995. In the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period January 1,
1996 to March 15, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
The accompanying interim financial statements of the Company have been
prepared for the period January 1, 1996 to March 15, 1996, the date the Company
was sold, as discussed in "ORGANIZATION" below. Results of operations for
periods subsequent to March 15, 1996 will be included in future financial
statements of HomeSide, Inc. Results of operations for the three months ended
March 31, 1995 have been presented for comparative purposes.
2. ORGANIZATION
Prior to March 15, 1996, the Company was a wholly-owned subsidiary of the
First National Bank of Boston (Bank of Boston), which is a wholly-owned
subsidiary of Bank of Boston Corporation. Upon the close of business on March
15, 1996, Bank of Boston Corporation sold the Company to certain affiliates of
Thomas H. Lee Company and Madison Dearborn Capital Partner, L.P. (Investors),
creating an independent mortgage company, which was named HomeSide, Inc. Under
terms of the transaction, Bank of Boston received cash and an equity interest in
the new company. The investors retained a majority interest in the new company.
On May 31, 1996, Barnett Banks, Inc. (Barnett) sold Barnett Mortgage
Company (now HomeSide Holdings, Inc.), which owned certain of Barnett's mortgage
banking operations, primarily its servicing portfolio and proprietary mortgage
banking software systems, to HomeSide, Inc. Barnett received cash and an
affiliate of Barnett acquired an ownership interest in HomeSide, Inc. for cash.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are discussed in Note 2 of the audited
consolidated financial statements of the Company for the year ended December 31,
1995. The accounting policies of the Company for the periods presented in the
accompanying interim financial statements conform to the policies presented in
the audited consolidated financial statements for the year ended December 31,
1995, except for the adoption of Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" (SFAS 122).
On January 1, 1996, the Company adopted SFAS 122 which, among other
provisions, requires that the value of mortgage servicing rights associated with
mortgage loans originated by an entity be capitalized as assets. The value of
the Company's originated mortgage servicing rights (OMSR) is determined by
allocating the total costs of the mortgage loans between the loans and the
mortgage servicing rights based on their relative fair values. Previously, OMSR
were included with the cost of the related loans and considered in determining
the gain or loss on sale when the loans were sold. Through March 15, 1996, the
Company capitalized $2,067,000 of OMSR, which had the effect of increasing net
mortgage origination revenue by $2,067,000 for the period January 1, 1996 to
March 15, 1996 since a portion of the basis of loans originated for sale was
allocated to OMSR.
F-27
<PAGE> 172
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 122 also requires that capitalized mortgage servicing rights be
evaluated for impairment based on the fair value of these rights. For purposes
of determining impairment, the Company's mortgage servicing rights are
stratified based on interest rate and type of loan (conventional/government).
Impairment, if any, is recognized through a valuation allowance for each
impaired stratum. The Company did not record any impairment charges related to
its mortgage servicing right portfolio for the period January 1, 1996 to March
15, 1996. Since SFAS 122 prohibits retroactive application, historical
accounting results have not been restated and, accordingly, the accounting
results for the quarter ended March 31, 1995 are not directly comparable with
the period January 1, 1996 to March 15, 1996.
4. RISK MANAGEMENT ACTIVITIES
As discussed in the Company's audited financial statements for the year
ended December 31, 1995, the Company has a risk management policy designed to
protect the economic value of its mortgage servicing portfolio from declines in
value due to increases in estimated prepayment speeds, which are primarily
influenced by declines in interest rates. During the first quarter of 1996,
long-term interest rates increased, reversing the declining trend which
prevailed during 1995. As a result, from January 1, 1996 to March 15, 1996, the
Company recognized a loss on risk management contracts of $128,795,000, which
included a reversal of $86,500,000 in unrealized gains recognized during 1995.
F-28
<PAGE> 173
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD APRIL 1, 1996 TO MAY 30, 1996,
THE PERIOD JANUARY 1, 1996 TO MAY 30, 1996 AND
THE THREE AND SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE APRIL 1, 1996 FOR THE SIX FOR THE PERIOD
MONTHS ENDED TO MAY 30, MONTHS ENDED JANUARY 1, 1996
JUNE 30, 1995 1996 JUNE 30, 1995 TO MAY 30, 1996
------------- -------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Mortgage Origination Revenue:
Mortgage origination fees........ $ 3,469,496 $ 1,646,405 $ 6,004,619 $ 7,288,487
Gain on sales of loans, net...... 994,681 (3,382,960) 1,513,615 482,097
------------ ----------- ------------ ------------
Total mortgage origination
revenue................... 4,464,177 (1,736,555) 7,518,234 7,770,584
------------ ----------- ------------ ------------
Interest Income (Expense):
Interest income.................. 4,420,002 5,637,821 7,002,527 14,216,288
Interest expense, substantially
all to affiliates.............. (6,766,123) (3,479,782) (9,684,960) (9,574,047)
------------ ----------- ------------ ------------
Net interest income
(expense)................. (2,346,121) 2,158,039 (2,682,433) 4,642,241
------------ ----------- ------------ ------------
Mortgage Servicing Revenue:
Mortgage servicing income........ 22,438,636 15,706,692 35,723,498 38,833,222
Mortgage servicing income from
affiliates..................... 6,407,273 5,464,308 12,502,709 13,626,195
Amortization of capitalized
mortgage servicing rights...... (12,123,793) (8,455,734) (20,474,792) (25,467,112)
------------ ----------- ------------ ------------
Net mortgage servicing revenue... 16,722,116 12,715,266 27,751,415 26,992,305
------------ ----------- ------------ ------------
Other Income.......................... 6,203,385 1,678,385 7,054,383 1,739,967
------------ ----------- ------------ ------------
Total revenues................... 25,043,557 14,815,135 39,641,599 41,145,097
------------ ----------- ------------ ------------
Expenses:
Salaries and benefits............ 14,300,768 10,401,903 23,433,243 25,172,581
General and administrative....... 12,119,341 6,816,094 20,402,735 20,748,278
Occupancy and equipment.......... 2,424,081 1,568,623 3,941,229 3,719,982
Amortization of goodwill......... 1,673,052 928,449 2,225,827 2,323,547
------------ ----------- ------------ ------------
Total expenses.............. 30,517,242 19,715,069 50,003,034 51,964,388
------------ ----------- ------------ ------------
Loss Before Income Taxes.............. (5,473,685) (4,899,934) (10,361,435) (10,819,291)
Income Tax Benefit.................... (2,117,689) (914,901) (2,876,941) (2,476,272)
------------ ----------- ------------ ------------
Net Loss.............................. $ (3,355,996) $(3,985,033) $ (7,484,494) $ (8,343,019)
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 174
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 TO MAY 30, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JANUARY 1, 1996
JUNE 30, 1995 TO MAY 30, 1996
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (7,484,494) $ (8,343,019)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of purchased mortgage servicing rights... 19,334,513 24,141,074
Amortization of excess servicing fees................. 1,140,279 1,326,038
Amortization of goodwill.............................. 2,225,827 2,323,547
Depreciation and amortization of property and
equipment........................................... 1,379,438 1,389,879
Capitalization of excess servicing fees............... (131,847) (6,436,908)
Gain on sale of mortgage servicing rights............. (4,849,738) --
Proceeds from sale of mortgage servicing rights....... 8,393,052 --
Origination of loans held for sale.................... (1,068,052,000) (1,204,553,000)
Sales of mortgage loans held for sale................. 992,831,897 1,422,203,868
Changes in assets and liabilities:
Accounts receivable, net......................... 1,770,362 32,354,311
Other assets..................................... 787,082 (22,768,003)
Accounts payable and accrued liabilities......... (4,477,798) (17,277,852)
Other, net....................................... 106,024 --
-------------- --------------
Total adjustments........................... (49,542,909) 232,702,954
-------------- --------------
Net cash (used in) provided by operating
activities................................ (57,027,403) 224,359,935
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchased and originated mortgage servicing rights....... (3,149,621) (17,869,158)
Net increase in loans held for investment................ (8,709,611) (14,137,015)
Net increase in real estate owned........................ (484,074) (837,758)
Purchase of property and equipment, net of retirements... (437,833) (647,946)
Net assets acquired by Barnett........................... -- 10,784,220
Business acquisitions, net of cash acquired.............. (158,747,064) --
-------------- --------------
Net cash used in investing activities............ (171,528,203) (22,707,657)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable................. 70,819,419 (233,671,822)
Capital contributions.................................... 167,331,263 28,233,505
-------------- --------------
Net cash provided by (used in) financing
activities................................................. 238,150,682 (205,438,317)
-------------- --------------
NET INCREASE (DECREASE) IN CASH............................ 9,595,076 (3,786,039)
CASH AT BEGINNING OF PERIOD................................ 3,900,572 14,987,783
============== ==============
CASH AT END OF PERIOD...................................... $ 13,495,648 $ 11,201,744
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 175
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 30, 1996 AND JUNE 30, 1995
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Barnett
Mortgage Company ("BMC") and its wholly owned subsidiaries, BancPLUS Financial
Corporation ("BancPLUS") and Loan America Financial Corporation ("LAFC"). Wholly
owned subsidiaries of BancPLUS include BancPLUS Mortgage Corp. and Honolulu
Mortgage Company, Inc. ("HMC"). As discussed in Note 2, BancPLUS and LAFC were
acquired in 1995 and 1994, respectively. These acquisitions were accounted for
as purchases; therefore, BancPLUS and LAFC are included in the consolidated
financial statements from their respective dates of acquisition. BMC is a wholly
owned subsidiary of Barnett Banks, Inc. (the "Parent"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. ORGANIZATION
On February 28, 1995, BMC completed the acquisition of BancPLUS for
approximately $167 million in cash. BancPLUS and its wholly owned subsidiaries
are full service mortgage bankers based in San Antonio, Texas and Honolulu,
Hawaii, who had total assets of $244 million and a servicing portfolio of $13.9
billion at the date of acquisition. The purchase price in excess of net assets
acquired was $113 million.
On October 1, 1994, BMC completed the acquisition of LAFC for $60 million.
LAFC was a Miami based wholesale mortgage banking company which had assets of
$180 million and a servicing portfolio of approximately $4 billion at the date
of acquisition. The purchase price in excess of net assets acquired was $29
million.
On May 31, 1996, the parent sold BMC to HomeSide, Inc. Barnett received
cash and an affiliate of Barnett received an ownership interest in HomeSide,
Inc. for cash. As of May 31, 1996, BMC ceased to exist as a separate company and
operations for periods subsequent to that date will be included in the results
of operations of HomeSide, Inc. Accordingly, a May 31, 1996, balance sheet is
not presented for BMC and statement of operations data does not include periods
subsequent to May 30, 1996.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BMC's accounting policies are discussed in Note 1 of the audited
consolidated financial statements for the year ended December 31, 1995. The
accounting policies of BMC for the periods presented in the accompanying interim
financial statements conform to the policies presented in the audited
consolidated financial statements for the year ended December 31, 1995, except
for the adoption of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" ("SFAS 122").
On January 1, 1996, BMC adopted SFAS 122 which, among other provisions,
requires that the value of mortgage servicing rights associated with mortgage
loans originated by an entity be capitalized as assets. The adoption of SFAS 122
resulted in capitalized originated mortgage servicing rights ("OMSR") of
$5,892,000 and $13,353,000 for the periods April 1, 1996 to May 30, 1996 and
January 1, 1996 to May 30, 1996, respectively.
SFAS 122 requires that capitalized mortgage servicing rights be evaluated
for impairment based on the fair value of these rights. For purposes of
determining impairment, BMC's mortgage servicing rights are stratified based on
interest rate, fixed rate versus adjustable rate, and type of loan (conventional
versus government). Impairment, if any, is recognized through a valuation
allowance for each stratum. BMC did not recognize any impairment charges related
to its mortgage servicing rights portfolio for the periods April 1, 1996 to May
30, 1996 and January 1, 1996 to May 30, 1996.
Since SFAS 122 prohibits retroactive application, historical accounting
results have not been restated and, accordingly, the accounting results for the
periods April 1, 1996 to May 30, 1996 and January 1, 1996 to May 30, 1996 are
not directly comparable with the three and six months ended June 30, 1995.
F-31
<PAGE> 176
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BancBoston Mortgage Corporation
We have audited the accompanying consolidated balance sheets of BancBoston
Mortgage Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of operations and retained earnings and cash flows for
each of the three years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BancBoston
Mortgage Corporation as of December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 10, BancBoston Mortgage Corporation adopted
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, and changed its method of accounting for purchased mortgage servicing
rights, effective January 1, 1993. BancBoston Mortgage Corporation also changed
its method of accounting for mortgage servicing fee income, effective January 1,
1994.
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
January 18, 1996, except
for the second paragraph
of Note 1 and the fifth
paragraph of Note 2, as to
which the date is March 4, 1996
F-32
<PAGE> 177
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash................................................................ $ 5,653 $ 830
Mortgage loans
Held for sale..................................................... 271,215 388,436
Held for investment............................................... 28,589 33,183
Purchased mortgage servicing rights, net............................ 415,815 533,891
Excess mortgage servicing receivable, net........................... 15,333 17,447
Accounts receivable................................................. 66,390 82,473
Accounts receivable from Bank of Boston and affiliates.............. 373 343
Pool loan purchases................................................. 77,477 65,272
Mortgage claims receivable, net..................................... 48,835 45,422
Deferred tax asset.................................................. 31,012 40,724
Real estate acquired................................................ 924 2,627
Premises and equipment, net......................................... 25,279 25,386
Other assets........................................................ 19,992 18,269
---------- ----------
Total Assets.............................................. $1,006,887 $1,254,303
========== ==========
LIABILITIES & STOCKHOLDER'S EQUITY
Note payable to Bank of Boston...................................... $ 779,021 $ 966,000
Accounts payable and accrued liabilities............................ 81,269 51,683
Accrued income taxes................................................ 4,825 36,213
Long-term debt...................................................... 14,007 13,816
---------- ----------
Total Liabilities......................................... 879,122 1,067,712
---------- ----------
Commitments and Contingencies (Notes 1, 9, 11, 13 and 15)
Stockholder's Equity:
Common stock, $1 par value per share: 10,000 shares authorized;
100 shares issued and outstanding
Additional paid-in capital........................................ 156,666 156,666
Retained earnings (Accumulated deficit)........................... (28,901) 29,925
---------- ----------
Total Stockholder's Equity..................................... 127,765 186,591
---------- ----------
Total Liabilities & Stockholder's Equity.................. $1,006,887 $1,254,303
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 178
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Mortgage servicing fees................................ $ 111,822 $140,491 $ 173,038
Gain (loss) on risk management contracts............... 6,688 (6,702) 108,702
Amortization of mortgage servicing rights.............. (112,492) (66,801) (108,013)
--------- -------- ---------
Net servicing revenue............................... 6,018 66,988 173,727
--------- -------- ---------
Interest income........................................ 50,156 31,585 24,324
Interest expense....................................... (44,199) (33,952) (27,128)
--------- -------- ---------
Net interest revenue................................ 5,957 (2,367) (2,804)
--------- -------- ---------
Net mortgage origination revenue....................... 6,173 4,983 3,417
Gain on sales of servicing rights...................... 651 10,862 10,230
Other income........................................... 50 147 511
--------- -------- ---------
Total Revenue.................................. 18,849 80,613 185,081
--------- -------- ---------
Expenses:
Salaries and employee benefits......................... 33,096 40,370 45,381
Occupancy and equipment................................ 7,966 9,012 10,009
Servicing losses on investor-owned loans............... 2,770 7,177 9,981
Real estate acquired................................... 1,600 253 1,054
Other expenses......................................... 22,058 19,326 21,896
--------- -------- ---------
Total Expenses................................. 67,490 76,138 88,321
--------- -------- ---------
Income (loss) before income taxes and cumulative
effects of changes in accounting principles............ (48,641) 4,475 96,760
Income tax expense (benefit) before cumulative
effects of changes in accounting principles:
Current................................................ (1,425) 4,773 47,646
Deferred............................................... (15,859) (2,248) (9,712)
--------- -------- ---------
Total Income Tax Expense (Benefit)............. (17,284) 2,525 37,934
--------- -------- ---------
Income (loss) before cumulative effects of changes
in accounting principles............................... (31,357) 1,950 58,826
Cumulative effect on prior years of:
Change in purchased mortgage servicing rights (PMSR)
valuation method, net of tax........................... (59,921) -- --
Change in accounting for income taxes.................... 6,093 -- --
Change in accounting for mortgage servicing fee income,
net of tax............................................. -- 3,455 --
--------- -------- ---------
Net Income (Loss)................................... (85,185) 5,405 58,826
Retained Earnings (Accumulated Deficit), January 1....... 50,879 (34,306) (28,901)
--------- -------- ---------
Retained Earnings (Accumulated Deficit), December 31..... $ (34,306) $(28,901) $ 29,925
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 179
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows (used in) provided by operating
activities:
Net income (loss)................................. $ (85,185) $ 5,405 $ 58,826
Adjustments to reconcile net income (loss) to cash
(used in) provided by operations:
Cumulative effects of change in:
PMSR valuation, net of tax................... 59,921 -- --
Accounting for income taxes.................. (6,093) -- --
Accounting for mortgage servicing fees, net
of tax.................................... -- (3,455) --
Amortization................................... 117,177 67,207 108,404
Depreciation................................... 2,243 2,621 3,133
Servicing losses on investor-owned loans....... 2,770 7,177 9,981
Deferred tax benefit........................... (15,859) (2,248) (9,712)
Gain on sale of mortgage servicing rights...... (651) (10,862) (10,230)
(Gain) loss on risk management contracts....... (6,688) 6,702 (108,702)
Write down of real estate acquired............. 1,113 1,066 1,699
Capitalized excess mortgage servicing
receivable................................... (13,557) (3,653) (7,513)
Mortgage loans originated and purchased for
sale......................................... (8,525,347) (4,673,100) (4,816,964)
Proceeds and principal repayments of mortgage
loans held for sale.......................... 8,395,528 5,005,969 4,694,909
Change in accounts receivable.................. (13,827) (7,482) (16,053)
Change in pool loan purchases.................. (1,345) 9,002 12,205
Change in mortgage claims receivable........... (13,681) 4,574 (5,383)
Change in accrued income taxes................. (3,584) (1,231) 31,388
Change in other assets and accounts payable and
accrued liabilities.......................... (3,154) (13,051) (11,899)
----------- ----------- -----------
Net cash (used in) provided by operating
activities................................... (110,219) 394,641 (65,911)
----------- ----------- -----------
Cash flows used in investing activities:
Principal payments on mortgage loans
held for investment............................ 7,038 11,216 12,966
Purchase of premises and equipment................ (4,170) (5,355) (3,141)
Acquisition of Bell Mortgage...................... -- -- (891)
Purchase of mortgage servicing rights............. (124,693) (164,047) (193,013)
Proceeds from risk management contracts, net...... 6,688 (9,641) 27,120
Proceeds from real estate acquired................ 5,010 2,773 2,610
Proceeds from sales of mortgage servicing
rights......................................... 651 10,862 28,649
----------- ----------- -----------
Net cash used in investing activities.......... (109,476) (154,192) (125,700)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 180
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows provided by (used in) financing
activities:
Borrowings from Bank of Boston.................... 7,674,500 3,988,224 3,669,085
Repayments to Bank of Boston...................... (7,455,481) (4,228,214) (3,482,106)
Repayment of long-term debt....................... (159) (173) (191)
----------- ----------- -----------
Net cash provided by (used in) financing
activities................................... 218,860 (240,163) 186,788
----------- ----------- -----------
Net (decrease) increase in cash..................... (835) 286 (4,823)
Cash at January 1................................. 6,202 5,367 5,653
----------- ----------- -----------
Cash at December 31............................... $ 5,367 $ 5,653 $ 830
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 44,809 $ 32,819 $ 27,498
=========== =========== ===========
Income taxes................................... $ 2,158 $ 7,864 $ 16,258
=========== =========== ===========
Supplemental schedule of non-cash investing
activities:
BBMC purchased bulk mortgage servicing rights
during the years 1993, 1994 and 1995. In
conjunction with purchases, liabilities were
assumed as follows:
Accounts payable.................................. $ 14,586 $ 60,188 $ 23,022
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 181
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
BancBoston Mortgage Corporation (BBMC) is a wholly-owned subsidiary of The
First National Bank of Boston (Bank of Boston), which is a wholly-owned
subsidiary of Bank of Boston Corporation. In December 1995, Bank of Boston
Corporation signed an agreement with Thomas H. Lee Company and Madison Dearborn
Partners (Investors) to sell BBMC, creating an independent mortgage company.
Under the terms of the agreement, Bank of Boston will receive cash and an equity
interest in the new company. The Investors will acquire a majority interest in
the new company. The transaction is expected to close in the first half of 1996.
On March 4, 1996, Barnett Banks, Inc. (Barnett) entered into an agreement
to sell certain of its mortgage banking operations, primarily its servicing
portfolio and proprietary mortgage banking software systems to the new company.
Barnett will receive cash and an ownership interest in the new company. The
transaction is expected to close in the second quarter of 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include BBMC and its wholly-owned
subsidiaries. All material intercompany transactions have been eliminated.
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interest rate products
BBMC enters into financial agreements and purchases financial instruments
as part of its interest rate risk management strategy. These agreements are not
considered trading instruments and are primarily entered into for purposes of
managing the prepayment risk associated with mortgage servicing rights and
interest rate risk relative to commitments to originate mortgage loans against
market value declines resulting from fluctuations in interest rates. These
instruments and agreements are designated as a part of BBMC's risk management
strategy and are linked to the related assets being managed.
BBMC acquires financial instruments, including derivative contracts (risk
management contracts), to partially protect the value of mortgage servicing
rights from the effects of prepayment activity caused by interest rate declines.
These financial instruments increase or decrease in value in an inverse
relationship to changes in market interest rates. Accordingly, as interest rates
decline, these financial instruments will increase in value, and as interest
rates increase, these financial instruments will decline in value. The value of
these financial instruments will fluctuate daily with interest rate changes, and
these fluctuations may be significant. However, the decline in the value of
these financial instruments is limited to the value recorded in the balance
sheet. These financial instruments primarily include options on U.S. treasury
futures, forward contracts, and interest rate floors.
As of March 4, 1996, due to rising interest rates, the risk management
contracts had declined in value by the carrying amount recorded on the balance
sheet at December 31, 1995 (see Note 14).
The cost of option contracts to manage BBMC's fixed and variable rate loan
origination commitments are capitalized and amortized as an adjustment of gain
or loss over the life of the underlying option contract.
F-37
<PAGE> 182
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unamortized premiums are included in other assets on the balance sheet. At
December 31, 1995, BBMC had call options to purchase mortgage-backed securities
with a total face amount of $315.0 million. The unamortized premiums associated
with these options was $1.1. million at December 31, 1995. There were no put
options outstanding as of the balance sheet date.
Short-term option contracts that are used to manage interest rate risk on
BBMC's mortgage servicing rights are marked-to-market with gains or losses
recognized in current income. The current market value of these option contracts
are included in the balance of capitalized mortgage servicing rights. At
December 31, 1995, the current market value of these option contracts included
in mortgage servicing rights was $84.9 million. Unrealized gains (losses) at
December 31, 1995 and 1994 included in the consolidated statements of operations
were $86.5 million and ($2.9) million for 1995 and 1994, respectively. All gains
and losses recognized in 1993 were realized.
Mortgage loans
Mortgage loans held for sale are carried at the lower of aggregate cost or
fair value. Fair value is based on the contract prices at which the mortgage
loans will be sold or, if the loans are not committed for sale, the current
market price. Loan origination fees and certain direct costs are deferred until
the related mortgage loans are sold.
Mortgage loans held for investment are stated at the lower of cost or fair
value at the time the permanent investment decisions are made. Discounts, if
any, are amortized over the anticipated life of the investment.
Loans are placed on nonaccrual status when any portion of the principal or
interest is ninety days past due or earlier when concern exists as to the
ultimate collectibility of principal or interest. When loans are placed on
nonaccrual status, the related interest receivable is reversed against interest
income of the current period. Interest payments received on nonaccrual loans are
applied as a reduction of the principal balance when concern exists as to the
ultimate collection of principal; otherwise, such payments are recognized as
interest income. Loans are removed from nonaccrual status when principal and
interest become current and they are estimated to be fully collectible.
Purchased and originated mortgage servicing rights
Purchased mortgage servicing rights (PMSR) represent the cost of purchasing
the right to service mortgage loans originated by others. PMSR are amortized as
a reduction of servicing fee income over the estimated servicing period in
proportion to the estimated future net cash flows from the loans serviced.
Remaining PMSR asset balances are evaluated for impairment by determining their
estimated recoverable amount through applying the discount rate in effect at the
time the servicing was purchased to the estimated future aggregate net cash
flows from the underlying mortgages. The carrying value is written down for any
impairment; such write-downs are included in the amortization of mortgage
servicing rights. Prior to 1993, this valuation was performed on an undiscounted
basis.
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122, Accounting for
Mortgage Servicing Rights. This Statement, among other provisions, requires that
the value of mortgage servicing rights associated with mortgage loans originated
by an entity be capitalized as assets. The value of originated mortgage
servicing rights (OMSR) is determined by allocating the total costs of the
mortgage loans between the loans and the mortgage servicing rights based on
their relative fair values. Presently, OMSR are included with the cost of the
related loans and considered in determining the gain or loss on sale when the
loans are sold. Also, the new Statement requires that capitalized mortgage
servicing rights be evaluated for impairment based on the fair value of these
rights. For the purposes of determining impairment, mortgage servicing rights
that are capitalized after the adoption of this Statement
F-38
<PAGE> 183
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are stratified based on one or more of the predominate risk characteristics of
the underlying loans. Impairment is recognized through a valuation allowance for
each impaired stratum.
The Statement applies prospectively to fiscal years beginning after
December 15, 1995. BBMC plans to adopt the Statement beginning January 1, 1996.
The actual effect of implementing this new Statement on BBMC's financial
position and results of operations will depend on factors including the amount
and mix of originated and purchased production, the level of interest rates, and
market estimates of future prepayment rates.
Accordingly, BBMC cannot determine at this time the ultimate impact on its
future earnings of applying the new methodologies of recording all mortgage
servicing rights as assets, of calculating impairment, and of applying the other
provisions of the Statement.
Excess mortgage servicing receivable
Excess mortgage servicing receivable (EMSR) represents the present value of
servicing fee income in excess of a normal servicing fee. When loans are sold,
the estimated excess servicing is recognized as income and amortized over the
estimated servicing period in proportion to the estimated future aggregate net
cash flows from the loans serviced. Remaining asset balances are evaluated for
impairment based on current estimates of future discounted cash flows. Such
write-downs are included in amortization of mortgage servicing rights.
Accounts receivable
Accounts receivable includes advances made in connection with loan
servicing activities. These advances consist primarily of payments for property
taxes and insurance premiums, as well as, principal and interest remitted to
investors before they are collected from mortgagors.
Pool loan purchases
Pool loan purchases are carried at cost and consist of FHA-insured,
VA-guaranteed, and conventional loans purchased from mortgage-backed securities
serviced by BBMC for others. At the purchase date, these loans were delinquent
or in the process of foreclosure or repayment. Losses associated with pool loan
purchases are largely reimbursed by the insurer.
Mortgage claims receivable
Mortgage claims receivable includes claims filed primarily with the FHA and
the VA. These receivables are carried at cost, less an allowance for estimated
amounts that are not collectible from the mortgage insuring agencies.
Real estate acquired
Real estate acquired includes properties on which BBMC has foreclosed and
taken title. It is initially reported at the lower of the carrying value of the
loan or the fair value of the real estate obtained, less estimated selling
costs. The excess, if any, of the loan balance over the fair value of the
property at the time of transfer to real estate acquired is charged to the
reserve for estimated servicing losses on investor-owned loans. Subsequent
declines in the value of the property and costs related to holding the property
are charged against income.
F-39
<PAGE> 184
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the estimated life of the improvement or the term of the lease.
Other assets
Other assets consist primarily of a prepaid pension asset of $10.1 million,
allocated from the Bank of Boston, and the excess of cost over fair value of net
assets acquired. The excess of cost over fair value of net assets acquired is
amortized using a straight-line basis over periods varying from seven to
twenty-five years.
Mortgage servicing fees
Mortgage servicing fees represent fees earned for servicing mortgage loans
owned by investors. The fees are generally calculated on the outstanding
principal balances of the loans serviced and are recognized as income on an
accrual basis. Prior to 1994, these fees were recorded as income when the
payments were received.
Servicing losses on investor-owned loans
BBMC records losses attributable to servicing FHA and VA loans for
investors. These amounts include actual losses for final disposition of loans,
accrued interest for which payment has been denied, and estimates for potential
losses based on BBMC's experience as a servicer of government loans.
A reserve for estimated servicing losses on investor-owned loans is
available for potential losses related to the mortgage servicing portfolio and
is included in the balance of accounts payable and accrued liabilities.
Net mortgage origination revenue
Net mortgage origination revenue includes gains and losses from sales of
mortgage loans, deferred origination fees and expenses, and the present value of
gains from the EMSR.
Income taxes
BBMC files its federal tax return through inclusion in Bank of Boston
Corporation's consolidated return. Accordingly, Bank of Boston's federal tax
provision is allocated to all member subsidiaries as if each member were a
separate taxpayer. However, the timing of utilization of certain of BBMC's tax
attributes may differ from a stand-alone tax-paying basis.
BBMC accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which was prospectively adopted effective January 1, 1993.
Note 10 includes additional information with respect to the adoption of this
Statement. Under the Statement, current tax liabilities or assets are recognized
through charges or credits to the current tax provision for the estimated taxes
payable or refundable for the current year.
Deferred tax liabilities are recognized for temporary differences that will
result in amounts taxable in the future and deferred tax assets are recognized
for temporary differences and tax benefit carryforwards that will result in
amounts deductible or creditable in the future. Net deferred tax liabilities or
assets are recognized through charges or credits to the deferred tax provision.
A deferred tax valuation reserve is established if it is more likely than not
that all or a portion of the deferred tax assets will not be realized. Changes
in the deferred tax valuation reserve are recognized through charges or credits
to the deferred tax provision.
F-40
<PAGE> 185
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of enacted changes in tax law, including changes in tax rates,
on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date.
Accounting changes
Effective January 1, 1993, BBMC elected to change its method of valuing its
mortgage servicing rights from an undiscounted basis to a discounted basis to
conform its financial reporting to the regulatory accounting rules adopted by
the bank regulators in 1993.
The cumulative effect to January 1, 1993 of adopting this change in
accounting principle was an increase in net loss of approximately $59.9 million,
which is net of $30.9 million of income tax benefit. Effective January 1, 1994,
BBMC changed its method of accounting for mortgage servicing fees from the cash
basis to the accrual basis. The cumulative effect to January 1, 1994 of this
accounting change was an increase in net income of approximately $3.5 million,
which is net of income taxes of $1.9 million.
BBMC's income (loss) before income taxes and cumulative effects of changes
in accounting principles and net income (loss) for 1993 and 1994, as if the
changes for the valuing of mortgage servicing rights and the change in
accounting for mortgage servicing fees had been retroactively applied, would
have been as follows:
<TABLE>
<CAPTION>
1993 1994
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and cumulative effects of
changes in accounting principles............................... $(48,013) $4,475
-------- ------
Net income (loss)................................................ $(24,850) $1,950
======== ======
</TABLE>
3. PURCHASED MORTGAGE SERVICING RIGHTS AND EXCESS MORTGAGE SERVICING RECEIVABLE
PMSR consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
PMSR....................................................... $ 732,775 $ 954,931
Accumulated amortization................................... (316,960) (421,040)
--------- ---------
Balance at December 31..................................... $ 415,815 $ 533,891
========= =========
</TABLE>
EMSR consists of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
EMSR......................................................... $ 60,419 $ 66,465
Accumulated amortization..................................... (45,086) (49,018)
-------- --------
Balance at December 31....................................... $ 15,333 $ 17,447
======== ========
</TABLE>
F-41
<PAGE> 186
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RESERVE FOR ESTIMATED SERVICING LOSSES ON INVESTOR-OWNED LOANS
An analysis of the reserve for estimated servicing losses on investor-owned
loans is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1.................................. $(5,000) $(4,700) $(6,650)
Servicing losses on investor-owned loans.............. (2,770) (7,177) (9,981)
Charge-offs........................................... 3,462 5,304 7,473
Recoveries............................................ (392) (77) (242)
------- ------- -------
Balance at December 31................................ $(4,700) $(6,650) $(9,400)
======= ======= =======
</TABLE>
5. MORTGAGE SERVICING PORTFOLIO
BBMC's residential mortgage servicing portfolio totaled $37.9 billion and
$41.5 billion at December 31, 1994 and 1995, respectively, and included
mortgage-backed securities of $24.0 billion and $28.5 billion in 1994 and 1995,
respectively. In addition, BBMC's commercial loan servicing portfolio totaled
$1.0 billion and $0.9 billion in 1994 and 1995, respectively. Related fiduciary
funds are segregated in trust accounts, principally deposited with Bank of
Boston, and are not included in the accompanying consolidated financial
statements.
BBMC has in force an errors and omissions policy in the amount of $20
million. Fidelity coverage up to a limit of $75 million, subject to a $1 million
deductible, is provided under a Bank of Boston master program.
6. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land......................................................... $ 4,086 $ 4,086
Building..................................................... 14,251 14,477
Furniture and equipment...................................... 24,300 26,870
Leasehold improvements....................................... 752 824
-------- --------
43,389 46,257
Accumulated depreciation and amortization.................... (18,110) (20,871)
-------- --------
Balance at December 31....................................... $ 25,279 $ 25,386
======== ========
</TABLE>
7. NOTE PAYABLE TO BANK OF BOSTON
BBMC borrows funds on a demand basis from Bank of Boston under a $1.25
billion line of credit, collateralized by substantially all of BBMC's assets. At
December 31, 1994 and 1995, the interest rate was 8.5% and 6.8%, respectively,
less the benefit received from balances held at Bank of Boston. Interest
expense, net of this benefit, was $25.0 million, $24.6 million, and $20.5
million in 1993, 1994, and 1995, respectively.
F-42
<PAGE> 187
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of a 30-year mortgage note, payable monthly with
interest at 9 1/2%, maturing in 2017. BBMC's main office building is pledged as
collateral. Principal payments due on long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................... $ 210
1997........................................... 231
1998........................................... 233
1999........................................... 279
2000........................................... 307
Thereafter..................................... 12,556
-------
Total Due............................ $13,816
=======
</TABLE>
9. EMPLOYEE BENEFITS
BBMC participates with Bank of Boston and its affiliates in a
non-contributory defined benefit pension plan (Plan) covering substantially all
full-time employees. Bank of Boston funds the Plan in compliance with the
requirements of the Employee Retirement Income Security Act.
The Plan is an account balance defined benefit plan in which each employee
has an account to which amounts are allocated based on level of pay and years of
service and which grows at a specific rate of interest. Benefits accrued prior
to 1989 are based on years of service, highest average compensation, and social
security benefits. Expense (income) associated with this Plan was ($0.9)
million, ($1.1) million and $0.5 million in 1993, 1994 and 1995, respectively.
BBMC also maintains non-qualified deferred compensation and retirement
plans for certain officers. All benefits provided under these plans are unfunded
and any payments to plan participants are made by BBMC. As of December 31, 1994
and 1995, approximately $0.8 million and $0.7 million, respectively, were
included in accrued expenses and other liabilities for these plans. For the
years ended December 31, 1993, 1994, and 1995, expense related to these plans
was $0.1 million, $0.2 million and $0.2 million, respectively.
BBMC also participates with Bank of Boston and its affiliates in a thrift
incentive plan. Under this plan, employer contributions are generally based on
the amount of eligible employee contributions. The amounts charged to operating
expense under this plan were $0.5 million, $0.8 million, and $0.2 million in
1993, 1994, and 1995, respectively.
BBMC participates with Bank of Boston and its affiliates by providing
certain health and life insurance benefits for retired employees. Eligible
employees currently receive credits up to $10 thousand based on years of
service, which are used to purchase post-retirement health care coverage. Life
insurance coverage is dependent on years of service at retirement. Amounts
charged to employee benefits expense for these benefits were $0.6 million in
1993, $0.6 million in 1994, and $0.5 million in 1995.
F-43
<PAGE> 188
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of post-retirement benefits expense for the three years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost (benefits earned during the period).............. $ 44 $ 63 $ 53
Interest cost on projected benefit obligation................. 280 282 264
Amortization:
Unrecognized net asset...................................... 250 250 250
Unamortized gain............................................ (20) (11) (53)
---- ---- ----
Net post-retirement benefit cost.............................. $554 $584 $514
==== ==== ====
</TABLE>
BBMC's unfunded accumulated post-retirement benefit obligation for the two
years ended December 31 was as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation for retirees...... $ 3,711 $ 3,515
Unrecognized net gain............................................ 1,385 1,541
Unrecognized net obligation...................................... (4,500) (4,250)
------- -------
Post-retirement benefit liability................................ $ 596 $ 806
======= =======
</TABLE>
Assumptions used in actuarial computations were:
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Rate of increase in future
compensation
levels.............................. 4.50% 4.50% 4.50%
Weighted average discount rate........ 7.50% 8.25% 7.25%
Medical inflation rate................ 12% declining 11% declining 8% declining
to 5% in 2001 to 5% in 2001 to 5% in 1999
</TABLE>
An increase of 1% in the assumed health care cost trend rate would result
in an increase of 4.8%, 5.9%, and 5.8% in the accumulated post-retirement
benefit obligation and 4.1%, 4.9%, and 4.9% in annual post-retirement benefit
expense in 1993, 1994, and 1995, respectively.
10. INCOME TAXES
The components of the net deferred tax asset at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
PMSR............................................................. $27,223 $34,008
EMSR............................................................. 9,303 8,957
Reserve for estimated servicing losses on investor-owned loans... 2,529 3,657
Other............................................................ (2,385) (1,301)
Valuation reserve................................................ (5,658) (4,597)
------- -------
Net deferred tax assets, net of reserve.......................... $31,012 $40,724
======= =======
</TABLE>
The deferred tax assets, net of the valuation reserve, can be realized from
the reversal of existing deferred tax liabilities and by carryback to previous
years with taxable income. The valuation reserve has been primarily established
against state deferred tax assets where carryback is not permitted.
F-44
<PAGE> 189
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for (benefit from) income taxes for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax provision (benefit)...................... $ (1,425) $ 4,773 $47,646
Deferred tax
Benefit on income.................................. (15,859) (2,587) (8,651)
Change in valuation reserve........................ -- 339 (1,061)
-------- ------- -------
Net deferred tax benefit............................. (15,859) (2,248) (9,712)
Income tax provision (benefit) before cumulative
effect of changes in accounting principles......... (17,284) 2,525 37,934
Change in accounting for:
PMSR............................................... (30,868) -- --
Income taxes....................................... (6,093) -- --
Mortgage servicing fee............................. -- 1,860 --
-------- ------- -------
Total income tax provision (benefit)................. $(54,245) $ 4,385 $37,394
======== ======= =======
</TABLE>
Effective January 1, 1993, BBMC adopted prospectively SFAS No. 109, which
principally affects accounting for deferred taxes. The cumulative effect to
January 1, 1993 of adopting this new Standard was a decrease in net loss of $6.1
million.
The following table reconciles the expected federal tax provision (benefit)
on income (loss) before cumulative effect of changes in accounting principles,
based on the federal statutory tax rate of 35% in 1993, 1994, and 1995, to the
actual tax provision (benefit) before cumulative effect of changes in accounting
principles:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected tax provision (benefit) applicable to income (loss)
before cumulative effect of changes in accounting
principles.................................................. $(17,024) $1,567 $33,866
Effect of:
State income taxes, net of federal tax benefits............. -- 381 3,774
Federal tax rate change to 35% on deferred tax assets....... (408) -- --
Other....................................................... 148 577 294
-------- ------ -------
Actual tax provision (benefit) before cumulative effect of
changes in accounting principles............................ $(17,284) $2,525 $37,934
======== ====== =======
</TABLE>
F-45
<PAGE> 190
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASE COMMITMENTS
BBMC leases office facilities and equipment under noncancelable leases that
include renewal options and escalation clauses which extend into 1999. Rental
expense for leases of office facilities and equipment was $3.6 million in both
1993 and 1994 and $3.9 million in 1995. BBMC's minimum future lease commitments
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996................................................... $1,996
1997................................................... 622
1998................................................... 280
1999................................................... 52
Thereafter............................................. --
------
Total........................................ $2,950
======
</TABLE>
12. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
BBMC purchases financial instruments and enters into financial agreements
with off-balance sheet risk in the normal course of business through the
origination and selling of mortgage loans and the management of the risk of
fluctuations in interest rates. These instruments involve, to varying degrees,
elements of credit and interest rate risk. Credit risk is the possibility that a
loss may occur if a counterparty to a transaction fails to perform according to
the terms of the contract. Interest rate risk is the possibility that a change
in interest rates will cause the value of a financial instrument to decrease or
become more costly to settle. Financial instruments primarily used by BBMC
include commitments to extend credit, mandatory and optional forward
commitments, commitments to purchase mortgage servicing rights, and other
instruments to minimize the interest rate risk of capitalized servicing assets,
primarily options on treasury bond futures.
Options and forward contracts
BBMC purchases options and forward contracts to protect the value of
mortgage servicing assets from exposure to increases in prepayment activity and
to reduce the impact of interest rate fluctuations on its lending commitments.
The notional amount of the options and forward contracts is the amount upon
which interest and other payments under the contract are based and is generally
not exchanged. Therefore, the notional amounts should not be taken as the
measure of credit risk or a reflection of future cash requirements. The risk
associated with options and forwards is the exposure to current and expected
market movements in the interest rates and the ability of the counterparties to
meet the terms of the contracts. The cash requirements associated with these
options and forward contracts, aside from the initial purchase price, are
minimal. These contracts generally require future performance on the part of the
counterparty upon exercise of the option or execution of the forward contract by
BBMC.
BBMC is exposed to credit loss in the event of nonperformance by the
counterparties to the various instruments. BBMC controls credit and market risk
associated with interest rate products by establishing and monitoring limits as
to the types and degree of risks that may be undertaken. BBMC's exposure to
credit risk in the event of default by the counterparties for the options is
$123.3 million which was due at December 31, 1995.
BBMC's exposure to credit risk in the event of default by the counterparty
for mandatory forward commitments to sell mortgage loans is the difference
between the contract price and the current market price, offset by any available
margins retained by BBMC or an independent clearing agent. The amount of credit
risk as of December 31, 1995, if all counterparties failed completely and if the
margins, if any, retained by BBMC
F-46
<PAGE> 191
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or an independent clearing were to become unavailable, was approximately $24.1
million for mandatory forward commitments of mortgage-backed securities.
The following is a summary of BBMC's notional amounts and fair values of
interest rate products as of December 31, 1994 and 1995.
<TABLE>
<CAPTION>
1994 1995
---------------------- ------------------------
ESTIMATED ESTIMATED
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE(1) AMOUNT VALUE(1)
-------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Purchased commitments to sell mortgage loans:
Mandatory forward contracts.................... $286,430 $4,413 $1,169,559 $ (9,798)
Options on mortgage-backed securities.......... 87,000 172 315,000 --
Risk management contracts:
Purchased...................................... 371,000 2,157 3,107,500 118,753
Sold........................................... -- -- 295,000 (33,833)
<FN>
- ---------------
(1) Fair value represents the amount at which a given instrument could be
exchanged in an arms length transaction with a third party as of the balance
sheet date.
(2) See Note 14 for additional disclosures on fair value of financial
instruments.
</TABLE>
Commitments to originate mortgage loans
BBMC regularly enters into commitments to originate mortgage loans at a
future date subject to compliance with stated conditions. Commitments to
originate mortgage loans have off-balance sheet risk to the extent BBMC does not
have matching commitments to sell loans, which exposes BBMC to lower of cost or
market valuation adjustments in a rising interest rate environment.
Additionally, the extension of a commitment, which is subject to BBMC's credit
review and approval policies, gives rise to credit exposure when certain
borrowing conditions are met and the loan is made. Until such time, it
represents only potential exposure. The obligation to lend may be voided if the
customer's financial condition deteriorates or if the customer fails to meet
certain conditions. Commitments to originate mortgage loans do not necessarily
reflect future cash requirements since some of the commitments are expected to
expire without being drawn upon. Commitments to originate mortgage loans totaled
$194.5 million at December 31, 1994 and $885.6 million at December 31, 1995.
Mortgage loans sold with recourse
BBMC sells mortgage loans with recourse to various investors and retains
the servicing rights on these loans. The total outstanding balance of loans sold
with recourse does not necessarily represent future cash outflows. The total
outstanding principal balance of loans sold with recourse was $9.0 million at
December 31, 1994 and $6.8 million at December 31, 1995.
Servicing commitments to investors
BBMC is required to submit to certain investors, primarily GNMA, guaranteed
principal and interest payments from the underlying mortgage loans regardless of
actual collections.
Purchase mortgage servicing rights commitments
BBMC routinely enters into commitments to purchase mortgage servicing
rights associated with mortgages originated by third parties, subject to
compliance with stated conditions. These commitments to
F-47
<PAGE> 192
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase mortgage servicing rights, expiring during 1996, correspond to mortgage
loans having an aggregate loan principal balance of approximately $2.7 billion
at December 31, 1995.
Geographical concentration of credit risk
BBMC is engaged in business nationwide and has no material concentration of
credit risk in any geographic region.
13. OTHER RELATED PARTY TRANSACTIONS
BBMC services mortgage loans for Bank of Boston and its affiliates. The
balances of those portfolios totaled $3.3 billion and $2.0 billion at December
31, 1994 and 1995, respectively. Related servicing fees are included in mortgage
servicing fees and were $5.4 million, $8.4 million and $7.6 million in 1993,
1994, and 1995, respectively.
BBMC reimburses Bank of Boston and its affiliates for certain occupancy and
supplies costs. Total costs reimbursed were $.0.7 million in 1993, 1994, and
1995.
BBMC services real estate acquired by the Bank of Boston and its
affiliates. Related expenses are reimbursed and were $0.3 million in 1993, $2.1
million in 1994, and $1.7 million in 1995.
An affiliate of Bank of Boston purchases a 99.25% participation in
mortgages in the process of being sold to permanent investors. The principal
balances sold under this agreement aggregated approximately $3.6 billion and
$6.5 billion in 1994 and 1995, respectively.
BBMC purchased mortgage servicing rights from Bank of Boston during 1995
and capitalized $4.8 million in mortgage servicing rights associated with this
transaction.
BBMC sold mortgage loans to Bank of Boston and its affiliates in its normal
course of business. These sales totaled $1.3 billion, $0.4 billion, and $0.5
billion in 1993, 1994, and 1995, respectively. Included in mortgage loans held
for sale at December 31 are loans which will be sold to Bank of Boston and its
affiliates totaling $94.5 million and $18.1 million for 1994 and 1995,
respectively.
Miscellaneous administrative services are provided by related companies.
These services did not have a material impact on the consolidated financial
statements.
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value.
Financial instruments include such items as mortgage loans held for sale,
mortgage loans held for investment, interest rate contracts, notes payable, and
other instruments.
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market
information. Where available, quoted market prices are used. In other cases,
fair values are based on estimates using other valuation techniques, such as
discounting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. These techniques involve uncertainties and
are significantly affected by the assumptions used and the judgments made
regarding risk characteristics of various financial instruments, prepayments,
discount rates, estimates of future cash flows, future expected loss experience,
and other factors. Changes in assumptions could significantly affect these
estimates. Derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in an immediate
sale of the instrument. Also, because of differences
F-48
<PAGE> 193
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in methodologies and assumptions used to estimate fair value, BBMC's fair values
should not be compared to those of other companies.
Under the Statement, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of BBMC. For certain assets and
liabilities, the information required under the Statement is supplemented with
additional information relevant to an understanding of the fair value.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
Cash
The carrying amount reported in the balance sheet approximates fair value.
Mortgages held for sale
Fair values are based on the estimated value at which the loans could be
sold in the secondary market. These loans are priced to be sold with servicing
rights retained, as is BBMC's normal business practice.
Mortgages held for investment
Fair value is estimated using market quotes for securities backed by
similar loans or by discounting contractual cash flows, adjusted for credit risk
and prepayment estimates. These loans are priced with servicing rights retained.
Discount rates are obtained from secondary market sources.
Accounts receivable, pool loan purchases, and mortgage claims receivable, net
Carrying amounts are considered to approximate fair value. All amounts that
are assumed to be uncollectible within a reasonable time are written off.
Excess mortgage servicing receivable
Fair value is based on the present value of expected future net cash flows
and the current estimated servicing life.
Risk management contracts
Fair values are estimated based on actual market quotes or option models.
Note payable to Bank of Boston
The carrying amount of the note payable to Bank of Boston reported in the
balance sheet approximates its fair value.
Long-term debt
Fair value of long-term debt is estimated by discounting estimated future
cash flows using a rate commensurate with the risks involved.
Commitments to originate mortgage loans
Fair value is estimated using quoted market prices for securities backed by
similar loans adjusted for differences in loan characteristics.
F-49
<PAGE> 194
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Forward contracts to sell mortgages
Forward contracts to sell mortgages, which represent legally binding
agreements to sell loans to permanent investors at a specified price or yield,
are valued using market prices for securities backed by similar loans and are
reflected in the fair values of the mortgages held for sale, to the extent that
these commitments relate to mortgage loans already originated, or of the related
commitments to extend credit.
Options on mortgage-backed securities
The fair values of options are estimated based on actual market quotes. In
some instances, quoted prices for the underlying loans or option models are
used.
The estimated fair values of BBMC's financial instruments are as follows:
<TABLE>
<CAPTION>
1994 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash.................................... $ 5,653 $ 5,653 $ 830 $ 830
Mortgages held for sale................. 271,215 272,535 388,436 395,984
Mortgages held for investment........... 28,589 26,988 33,183 35,003
Accounts receivable..................... 66,763 66,763 82,816 82,816
Pool loan purchases..................... 77,477 77,477 65,272 65,272
Mortgage claims receivable.............. 48,835 48,835 45,422 45,422
Excess mortgage servicing receivable.... 15,333 20,700 17,447 19,117
Risk management contracts, classified
as PMSR, and other assets(2).......... 3,727 2,157 84,520 84,920
LIABILITIES
Note payable to Bank of Boston.......... 779,021 779,021 966,000 966,000
Long-term debt.......................... 14,007 13,853 13,816 16,211
OFF-BALANCE SHEET(1)
Commitments to originate mortgage
loans................................. (1,455) 1,094
Mandatory forward contracts to sell
mortgages(2).......................... 4,413 (9,798)
Options on mortgage-backed
securities(2)......................... 172 --
Risk management contracts............... (6,998) --
<FN>
- ---------------
(1) Parentheses denote a liability
(2) See Note 12 for additional disclosures on notional amounts
</TABLE>
Fair value estimates are made as of a specific point in time, based on
relevant market data and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale BBMC's entire holding of a particular financial instrument. Because no
active market exists for some portion of BBMC's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, current interest rates and repayment
trends, risk characteristics of various financial instruments, and other
factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in any of these assumptions used in calculating fair value
would also significantly affect the estimates. Further, the fair value estimates
were calculated as of
F-50
<PAGE> 195
BANCBOSTON MORTGAGE CORPORATION
(Acquired by HomeSide, Inc. on March 15, 1996 and now known as HomeSide Lending,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 and 1995. Changes in market interest rates and prepayment
assumption could significantly change the fair value.
15. CONTINGENCIES
BBMC is a defendant in a number of legal proceedings arising in the normal
course of business. BBMC, in management's estimation, has recorded adequate
reserves in the financial statements for pending litigation. Management, after
reviewing all actions and proceedings pending against or involving BBMC,
considers that the aggregate liability or loss, if any, resulting from the final
outcome of these proceedings will not have a material effect on the financial
position or results of operations of BBMC.
During 1994, BBMC settled a class action lawsuit pertaining to escrow
practices. BBMC agreed to change its escrow calculations to the aggregate method
and, as a result, refunded approximately $45.0 million in excess escrow balance
to mortgagors. In addition, BBMC paid interest on these excess funds in the
amount of approximately $1.3 million. The change in escrow calculations did not
have a material impact on the consolidated financial statements.
16. ACQUISITION OF BELL MORTGAGE
On June 1, 1995, BBMC purchased the assets and liabilities of Bell Mortgage
Company (Bell Mortgage), a privately-held mortgage origination company located
in Minneapolis, Minnesota, for $0.9 million in cash. The acquisition of Bell
Mortgage was accounted for as a purchase. Accordingly, the purchase price was
allocated to net assets acquired based upon their estimated fair market value.
As of a result of the acquisition, goodwill of $0.4 million was recorded and is
being amortized over a 7-year period using the straight-line method.
Also, under the terms of the agreement, the shareholders of Bell Mortgage
will receive additional contingent cash payments based on Bell Mortgage reaching
specific performance goals over the next 3 years. These additional cash payments
will be recorded as additions to goodwill and will be amortized over the
remainder of the original 7-year period using the straight-line method.
Results of operations after the acquisition date are included in the 1995
consolidated financial statements. Proforma financial results would not have
been materially different as a result of this acquisition.
F-51
<PAGE> 196
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Barnett Mortgage Company:
We have audited the accompanying consolidated balance sheets of BARNETT
MORTGAGE COMPANY (a Florida corporation and a wholly owned subsidiary of Barnett
Banks, Inc.) and subsidiaries as of December 31, 1994 and 1995 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barnett Mortgage Company and
subsidiaries as of December 31, 1994 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
March 8, 1996
F-52
<PAGE> 197
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CASH............................................................ $ 3,900,572 $ 14,987,783
MORTGAGE LOANS:
Held for sale, net............................................ 183,913,568 465,879,840
Held for investment, net...................................... 14,699,097 19,225,181
CAPITALIZED MORTGAGE SERVICING RIGHTS:
Purchased mortgage servicing rights, net...................... 85,574,002 240,059,235
Excess mortgage servicing rights, net......................... 6,887,431 10,729,518
ACCOUNTS RECEIVABLE, Net:
Mortgage claims receivable.................................... 14,667,507 40,810,317
Amounts due from affiliates................................... 170,894 3,296,638
Other receivables............................................. 3,704,721 20,784,599
PROPERTY AND EQUIPMENT, net..................................... 18,565,631 25,263,834
REAL ESTATE OWNED, net.......................................... 731,091 600,061
GOODWILL, net................................................... 25,690,047 138,674,988
OTHER ASSETS.................................................... 967,476 14,318,185
------------ ------------
$359,472,037 $994,630,179
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Notes payable................................................. $248,214,485 $653,055,514
Drafts payable................................................ 9,208,104 11,573,446
Accounts payable and accrued liabilities...................... 9,791,502 63,789,362
Deferred tax liability........................................ 7,355,676 34,383,877
------------ ------------
Total liabilities..................................... 274,569,767 762,802,199
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $100 par value; 10,000 shares authorized,
issued, and outstanding.................................... 1,000,000 1,000,000
Additional paid-in capital.................................... 81,141,958 248,453,974
Retained earnings (accumulated deficit)....................... 2,760,312 (17,625,994)
------------ ------------
Total stockholder's equity............................ 84,902,270 231,827,980
------------ ------------
$359,472,037 $994,630,179
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-53
<PAGE> 198
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
MORTGAGE ORIGINATION REVENUE:
Mortgage origination fees...................... $ 357,900 $ 3,276,304 $ 17,103,976
Gain (loss) on sales of loans, net............. 5,687,882 691,969 (13,920,382)
------------ ------------ ------------
Total mortgage origination revenue..... 6,045,782 3,968,273 3,183,594
------------ ------------ ------------
INTEREST INCOME (EXPENSE):
Interest income................................ 855,053 3,459,860 27,264,470
Interest expense, substantially all to
affiliates.................................. (1,415,372) (4,911,433) (20,427,661)
------------ ------------ ------------
Net interest income (expense).......... (560,319) (1,451,573) 6,836,809
------------ ------------ ------------
MORTGAGE SERVICING REVENUE:
Mortgage servicing income...................... 20,559,829 27,130,545 83,502,311
Mortgage servicing income from affiliates...... 18,325,974 20,016,790 25,057,174
Amortization of capitalized mortgage servicing
rights...................................... (11,547,048) (17,783,184) (48,282,193)
Gain on sales of servicing..................... 0 0 9,096,134
------------ ------------ ------------
Net mortgage servicing revenue......... 27,338,755 29,364,151 69,373,426
------------ ------------ ------------
OTHER INCOME..................................... 6,296,519 4,491,999 2,592,125
------------ ------------ ------------
Total revenues......................... 39,120,737 36,372,850 81,985,954
------------ ------------ ------------
EXPENSES:
Salaries and benefits.......................... 13,913,978 17,473,917 53,070,150
General and administrative..................... 12,432,134 14,923,734 41,849,355
Affiliate profit sharing....................... 10,773,786 3,533,551 6,242,191
Occupancy and equipment........................ 1,809,949 2,702,169 5,959,537
Amortization of goodwill....................... 0 259,275 4,839,536
------------ ------------ ------------
Total expenses......................... 38,929,847 38,892,646 111,960,769
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES................ 190,890 (2,519,796) (29,974,815)
INCOME TAX PROVISION (BENEFIT)................... 87,040 (461,411) (9,588,509)
------------ ------------ ------------
NET INCOME (LOSS)................................ $ 103,850 $ (2,058,385) $(20,386,306)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-54
<PAGE> 199
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992.......... $1,000,000 $ 16,910,146 $ 4,714,847 $ 22,624,993
Capital contributions............. 0 3,527,674 0 3,527,674
Net income........................ 0 0 103,850 103,850
---------- ------------ ------------ ------------
BALANCE, December 31, 1993.......... 1,000,000 20,437,820 4,818,697 26,256,517
Capital contributions............. 0 60,704,138 0 60,704,138
Net loss.......................... 0 0 (2,058,385) (2,058,385)
---------- ------------ ------------ ------------
BALANCE, December 31, 1994.......... 1,000,000 81,141,958 2,760,312 84,902,270
Capital contributions............. 0 167,312,016 0 167,312,016
Net loss.......................... 0 0 (20,386,306) (20,386,306)
---------- ------------ ------------ ------------
BALANCE, December 31, 1995.......... $1,000,000 $248,453,974 $(17,625,994) $231,827,980
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-55
<PAGE> 200
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(NOTE 7)
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 103,850 $ (2,058,385) $ (20,386,306)
----------- ------------ -------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Amortization of purchased mortgage servicing
rights.................................... 9,321,064 15,288,479 45,816,361
Amortization of excess servicing fees....... 2,225,984 2,494,705 2,465,832
Amortization of goodwill.................... 0 259,275 4,839,536
Depreciation and amortization of property
and equipment............................. 1,430,339 1,776,267 3,191,009
Capitalization of excess servicing fees..... (3,657,824) (1,258,180) (7,081,112)
Origination of loans held for sale.......... 0 (508,150,116) (3,318,208,729)
Sales of mortgage loans held for sale....... 0 456,864,511 3,106,918,971
Proceeds from sales of mortgage servicing
rights.................................... 0 0 10,437,502
Gain on sales of servicing rights........... 0 0 (9,096,134)
Deferred income tax provision (benefit)..... (309,391) 91,933 (1,250,725)
Changes in assets and liabilities:
Accounts receivable, net.................. (3,931,488) 2,067,746 (8,164,924)
Other assets.............................. (292,732) 1,254,075 (11,285,808)
Accounts payable and accrued
liabilities............................ (11,438,834) (7,700,318) 9,488,879
Other, net................................ 209,676 45,104 6,807,216
----------- ------------ -------------
Total adjustments...................... (6,443,206) (36,966,519) (165,122,126)
----------- ------------ -------------
Net cash used in operating
activities........................... (6,339,356) (39,024,904) (185,508,432)
----------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchased mortgage servicing rights............ (31,569,835) (22,487,973) (21,563,279)
Net increase in loans held for investment...... (457,402) (1,593,575) (3,152,365)
Net increase (decrease) in real estate owned... (421) (166,405) 1,751,036
Purchases of property and equipment, net of
retirements................................. (4,232,868) (220,543) (556,054)
Business acquisitions, net of cash acquired.... 0 (58,824,244) (158,747,064)
----------- ------------ -------------
Net cash used in investing
activities........................... (36,260,526) (83,292,740) (182,267,726)
----------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in notes payable.................. 43,004,351 64,990,122 211,666,829
Capital contributions.......................... 0 59,765,851 167,196,540
----------- ------------ -------------
Net cash provided by financing
activities........................... 43,004,351 124,755,973 378,863,369
----------- ------------ -------------
NET INCREASE IN CASH............................. 404,469 2,438,329 11,087,211
CASH AT BEGINNING OF YEAR........................ 1,057,774 1,462,243 3,900,572
----------- ------------ -------------
CASH AT END OF YEAR.............................. $ 1,462,243 $ 3,900,572 $ 14,987,783
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-56
<PAGE> 201
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Barnett Mortgage Company and its wholly owned subsidiaries (the "Company")
originate, purchase, and service residential mortgage loans. The Company
operates nationally with offices in 25 states.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and prevailing practices within the mortgage
banking industry.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Barnett
Mortgage Company ("BMC") and its wholly owned subsidiaries, BancPLUS Financial
Corporation ("BancPLUS") and Loan America Financial Corporation ("LAC").
Wholly-owned subsidiaries of BancPLUS include BancPLUS Mortgage Corp. and
Honolulu Mortgage Company ("HMC"). As discussed in Note 2, BancPLUS and LAC were
acquired in 1994 and 1995, respectively. These acquisitions were accounted for
as purchases; therefore, BancPLUS and LAC are included in the consolidated
financial statements from their respective dates of acquisition. BMC is a wholly
owned subsidiary of Barnett Banks, Inc. (the "Parent"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain previously reported amounts have been reclassified to conform to
current presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosed amount of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Mortgage Loans
Mortgage loans held for sale are carried at the lower of aggregate cost or
market. Cost is defined as the unpaid principal balance of the mortgage loans,
adjusted for discounts and premiums, including deferred costs and fees.
Differences between the net carrying amount of mortgage loans held for sale and
the amount received from the sale, net of the recognition of any commitment fees
paid, are recognized as gains or losses from the sale of mortgage loans. At
December 31, 1994 and 1995, mortgage loans held for sale were carried at cost,
which was less than their market values. Mortgage loans held for sale originated
by the Parent's banking subsidiaries (the "Affiliate Banks") are not included in
the Company's mortgage loans held for sale. These loans are funded and owned by
the Affiliate Banks. The Company will purchase such loans from the Affiliate
Banks and sell them to the secondary market simultaneously. Gains and losses
from the sales of loans are recorded in the accompanying statements of
operations. At December 31, 1995, the Affiliate Banks owned approximately
$135,323,000 in mortgage loans held for sale.
Mortgage loans held for investment are stated at the lower of cost or fair
market value at the time the permanent investment decisions are made and
primarily consist of (i) mortgage loans originated on behalf of employees of the
Parent and the Affiliate Banks who are relocating, (ii) seasoned loans obtained
in acquisitions by the Affiliate Banks which management has chosen to retain
rather than sell, and (iii) loans in the final stages of foreclosure which were
repurchased by the Company.
F-57
<PAGE> 202
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest income on mortgage loans is recorded on the accrual basis. Loans
are placed on nonaccrual status and accrued interest is reversed when the
collectibility of interest and principal is uncertain, generally after the loans
become 120 days past due.
Capitalized Mortgage Servicing Rights
Capitalized mortgage servicing rights include purchased mortgage servicing
rights ("PMSRs") and excess servicing fees. The Company capitalizes the cost of
purchased mortgage servicing rights ("bulk"), servicing rights acquired through
the purchase of mortgage loans originated by others ("flow") and servicing
rights acquired in connection with acquisitions ("acquired") (Note 2). These
amounts are capitalized and amortized in proportion to and over the life of the
net servicing income, primarily using a discounted cash flow method for flow and
acquired purchases and to a maximum of seven years using the
sum-of-the-years-digits method for bulk purchases. PMSRs, net, represent PMSRs
of $116,326,941 and $308,722,024 at December 31, 1994 and 1995, respectively,
net of accumulated amortization of $30,752,939 and $68,662,789, respectively.
Excess servicing fees are stated net of accumulated amortization and
represent the present value of servicing yields in excess of industry standards.
These amounts are capitalized and amortized over the estimated life of the
underlying loans, primarily to a maximum of eight years using the
sum-of-the-years-digits method, to provide for the recognition of a normal
servicing fee in each year. Excess servicing fees, net, represent excess
servicing fees at December 31, 1994 and 1995 of $14,876,068 and $20,640,470,
respectively, net of accumulated amortization of $7,988,637 and $9,910,952,
respectively.
The Company evaluates the effect of prepayments on the net realizable value
of purchased mortgage servicing rights and excess servicing fees on a
disaggregated undiscounted basis. If needed, the Company records additional
amortization or write-downs based on this evaluation.
Accounts Receivable
Mortgage claims receivable includes loan servicing advances made in
connection with loan servicing activities and claims receivable. Loan servicing
advances consist primarily of payments for property taxes and insurance
premiums, as well as principal and interest remitted to investors before they
are collected from mortgagors. Claims receivable includes claims filed on
foreclosed mortgages, primarily with the FHA and the VA.
Reserves for estimated losses on loan servicing advances are based on
management's continuing evaluation of potential losses. The allowance for losses
included in accounts receivable was $320,654 and $1,542,989 at December 31, 1994
and 1995, respectively.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided on a straight-line basis using estimated useful lives
of 12 to 50 years for buildings and improvements and 3 to 20 years for furniture
and equipment. Leasehold improvements are amortized over their estimated useful
lives or the terms of the related leases, whichever is shorter.
Real Estate Owned
Real estate owned represents real estate acquired by foreclosure and is
carried at the lower of cost or appraised value minus estimated costs to sell.
Any additional declines are charged to other expense and are recorded in a
valuation reserve on an asset-by-asset basis. Net costs of maintaining and
operating foreclosed properties are charged to expense as incurred.
F-58
<PAGE> 203
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Commitment Fees
Deferred commitment fees, which are included in other assets, primarily
consist of fees paid to permanent investors to ensure the ultimate sale of loans
and put option fees paid for the option of selling mortgage-backed securities.
Fees paid to permanent investors are recognized as an adjustment to the sales
price when loans are sold. Any gain or loss resulting from either the exercise
or expiration of put option fees is included in gain (loss) on sales of loans.
Goodwill
Net assets acquired in purchase transactions (Note 2) are recorded at fair
value at the date of acquisition. Goodwill, representing the excess of the
purchase price over the fair value of the net assets purchased, is being
amortized on a straight-line basis over 25 years. The Company reviews its
goodwill periodically for events or changes in circumstances that may indicate
that the carrying amounts of the assets are not recoverable on an undiscounted
cash flow basis.
Reserve for Losses
A reserve for losses is maintained for estimated foreclosure losses. The
required level of reserves is determined on an undiscounted basis by analysis of
such factors such as the prevailing stages of delinquencies, anticipated
reinstatement rates from the various stages of delinquency, and loss experience
on similar loans serviced. This reserve represents that portion of the estimated
foreclosure losses for which the Company does not have an outstanding receivable
as of the date of the financial statements, but for which an expected loss is
estimated based on loan delinquencies and other characteristics of the loans
serviced. This reserve is included in accounts payable and accrued liabilities
in the accompanying financial statements.
Mortgage Origination Fees
Mortgage origination fees consist primarily of (i) fees received from
borrowers on loans originated for sale, (ii) fees received from certain
correspondents, and (iii) fees received from an affiliate (Note 5). Mortgage
origination fees are deferred and recognized as income when the related loans
are sold.
Mortgage Servicing Revenue
Mortgage servicing fees consist primarily of servicing fees and late
charges received for servicing loans owned by investors and affiliates.
Servicing fees are calculated on the basis of the outstanding principal balance
of loans serviced and are recorded as income when received. Loan servicing costs
are charged to expense as incurred.
Late charges are recognized when assessed and are recorded in mortgage
claims receivable net of an allowance for estimated waived or otherwise
uncollectible amounts. Accrued late fees, net of allowance, totaled $1,998,380
and $1,554,393 at December 31, 1994 and 1995, respectively. In addition, amounts
greater than 120 days past due are written off.
Statement of Financial Accounting Standards No. 122
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights". This statement, among other provisions, requires
that the value of mortgage servicing rights associated with mortgage loans
originated by an entity be capitalized as assets. The value of originated
mortgage servicing rights ("OMSRs") is determined by allocating the total cost
of the mortgage loans between the loans and the mortgage servicing rights based
on their relative fair values. Presently, OMSRs are included with the cost of
the related loans and
F-59
<PAGE> 204
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
considered in determining the gain or loss on sale when the loans are sold.
Also, the statement requires that capitalized mortgage servicing rights be
evaluated for impairment based on the fair value of these rights. For the
purposes of determining impairment, mortgage servicing rights that are
capitalized after the adoption of this statement are stratified based on one or
more of the predominate risk characteristics of the underlying loans. Impairment
is recognized through a valuation allowance for each impaired stratum.
The statement applies prospectively to fiscal years beginning after
December 15, 1995. The Company plans to adopt the statement beginning January 1,
1996. The actual effect of implementing this statement on the Company's
financial position and results of operations will depend on factors determined
at the end of a reporting period, including the amount and mix of originated and
purchased production, the level of interest rates, and market estimates of
future prepayment rates. Accordingly, the Company cannot determine at this time
the ultimate impact on its future earnings of applying the new methodologies of
recording all mortgage servicing rights as assets, of calculating impairment,
and of applying the other provisions of the statement; however, the adoption of
the statement will accelerate the timing of income recognition from origination
activities.
Consolidated Statements of Cash Flows
The Company defines cash as cash in banks.
2. ACQUISITIONS
On February 28, 1995, the Company completed the acquisition of BancPLUS for
approximately $167 million in cash. BancPLUS and its wholly owned subsidiaries,
BancPLUS Mortgage Corp. and HMC, are full-service mortgage bankers based in San
Antonio, Texas, and Honolulu, Hawaii, who had total assets of $244 million and a
servicing portfolio of $13.9 billion at the date of acquisition. The purchase
price in excess of net assets acquired was $113 million.
On October 1, 1994, the Company completed the acquisition of LAC for $60
million. LAC was a Miami-based wholesale mortgage banking company which had
assets of $180 million and a servicing portfolio of approximately $4 billion at
the date of acquisition. The purchase price in excess of net assets acquired, as
adjusted for changes in estimates in 1995, was $29 million.
These acquisitions are included in the consolidated financial statements
from their respective dates of acquisition. Unaudited pro forma statements of
operations for 1994 and 1995, assuming BancPLUS and LAC had been acquired as of
January 1, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Mortgage origination revenue.................................. $ 26,149 $ 4,631
Interest income (expense), net................................ (148) 6,137
Mortgage servicing revenue.................................... 87,437 74,646
Other income.................................................. 5,830 2,744
--------- ---------
Total revenues...................................... 119,268 88,158
Expenses...................................................... (136,439) (115,997)
--------- ---------
Loss before income taxes and affiliate profit sharing......... (17,171) (27,839)
Affiliate profit sharing...................................... (3,534) (6,242)
Income tax benefit............................................ 4,741 10,780
--------- ---------
Net loss............................................ $ (15,964) $ (23,301)
========= =========
</TABLE>
F-60
<PAGE> 205
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above pro forma statements of operations assume that the Parent contributed
capital equal to the purchase price as of January 1, 1994. The purchase
accounting adjustments are reflected based on the actual purchase price and the
amount of assets actually acquired. In addition, gains on sales of mortgage
servicing rights are included in mortgage servicing revenue in these pro forma
results. No adjustments have been made for restructuring costs that might have
been incurred during the periods presented or for cost efficiencies that might
have been realized. Accordingly, these pro forma results are not indicative of
future results.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Building and improvements......................... $14,720,814 $23,494,585
Furniture and equipment........................... 11,584,787 12,881,277
----------- -----------
26,305,601 36,375,862
Less accumulated depreciation..................... 7,739,970 11,112,028
----------- -----------
$18,565,631 $25,263,834
=========== ===========
</TABLE>
4. INCOME TAXES
The Company's results of operations are included in the Parent's
consolidated income tax return. The Company's income tax provision and related
asset or liability are computed based on income tax rates as if the Company
filed a separate income tax return. Pursuant to a tax-sharing agreement with the
Parent, the Company is reimbursed for the tax effect of current operating losses
utilized in the consolidated return.
The components of the provision (benefit) for income taxes for the years
ended December 31, 1993, 1994, and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $ 377,258 $(514,431) $(7,504,840)
State................................ 19,173 (38,913) (832,944)
--------- --------- -----------
396,431 (553,344) (8,337,784)
--------- --------- -----------
Deferred:
Federal.............................. (296,983) 87,016 (1,080,141)
State................................ (12,408) 4,917 (170,584)
--------- --------- -----------
(309,391) 91,933 (1,250,725)
--------- --------- -----------
Provision (benefit) for income taxes... $ 87,040 $(461,411) $(9,588,509)
========= ========= ===========
</TABLE>
F-61
<PAGE> 206
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between federal income tax computed at the statutory rate
of 35 percent and the actual tax provision are shown below:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- ------------
<S> <C> <C> <C>
Income (loss) before taxes................... $190,890 $(2,519,796) $(29,974,815)
======== =========== ============
Tax provision (benefit) at the statutory
rate....................................... $ 66,812 $ (881,929) $(10,491,185)
Increase (decrease) in taxes:
State income tax, net of federal benefit... 4,590 (22,098) (539,470)
Goodwill................................... 0 90,746 1,693,838
Other...................................... 15,638 351,870 (251,692)
-------- ----------- ------------
Total income tax provision
(benefit)........................ $ 87,040 $ (461,411) $ (9,588,509)
======== =========== ============
Effective tax rate........................... 46% (18)% (32)%
======== =========== ============
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities due to differences in the timing of recognition of revenues and
expenses and differences related to acquisitions. The tax effects of temporary
differences which create deferred tax assets and liabilities at December 31,
1994 and 1995 are detailed below:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserves................................................ $ 0 $ 5,109,268
Net operating loss carryforwards........................ 4,044,430 3,146,010
Late charges............................................ 629,351 954,969
Property and equipment.................................. 651,825 321,215
Other................................................... 930,060 1,571,175
----------- -----------
Gross deferred tax assets....................... 6,255,666 11,102,637
Valuation allowance............................. 0 (3,146,010)
----------- -----------
Deferred tax asset.............................. 6,255,666 7,956,627
----------- -----------
Deferred tax liabilities:
Capitalized servicing rights............................ 13,310,651 41,520,994
Other................................................... 300,691 819,510
----------- -----------
Deferred tax liability.......................... 13,611,342 42,340,504
----------- -----------
Net deferred tax liability................................ $ 7,355,676 $34,383,877
=========== ===========
</TABLE>
The Company's $34,383,877 net deferred tax liability includes a valuation
allowance of $3,146,010, representing LAC's preaffiliation federal and state net
operating loss carryforwards for which realization is uncertain.
5. RELATED-PARTY TRANSACTIONS
The Company services loans (Note 8) for the Affiliate Banks. Total loan
servicing income relating to loans owned by the Affiliate Banks was
approximately $18,326,000, $20,017,000, and $25,057,000 in 1993, 1994, and 1995,
respectively.
Through March 1995, the Company received earnings credits from the Parent
or its subsidiaries in exchange for maintaining fiduciary deposit accounts.
Revenue recognized as a result of this arrangement was
F-62
<PAGE> 207
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,456,000, $2,365,000, and $523,000 in 1993, 1994, and 1995, respectively, and
has been included in other income. Subsequent to March 1995, the Company
received earnings credits in the form of reduced interest expense.
Notes payable at December 31, 1995, includes advances from lines of credit
with the Parent and the Affiliate Banks which bear interest at a rate of LIBOR
plus 1%, reduced in proportion to compensating balances maintained with
Affiliate Banks.
Amounts payable to the Parent and Affiliate Banks which are included in
accounts payable and accrued liabilities at December 31, 1994 and 1995 were
$2,170,000 and $7,680,000, respectively.
The Company performs certain centralized processing functions for certain
Affiliate Banks. Included in other income was approximately $2,559,000,
$2,171,000, and $1,972,000 in fees for these services for the years ended
December 31, 1993, 1994, and 1995, respectively.
The Company recorded certain expenses related to transactions with the
Parent and the Affiliate Banks as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Management fees............................. $ 465,729 $ 721,141 $ 2,914,794
Affiliate revenue sharing................... 10,773,786 3,533,551 6,242,191
Rent expense................................ 1,267,130 1,292,498 1,316,448
Interest expense............................ 1,415,372 3,281,503 17,588,548
Information processing support.............. 328,556 1,953,244 3,505,484
Internal audit fees......................... 91,933 358,800 421,392
----------- ----------- -----------
$14,342,506 $11,140,737 $31,988,857
=========== =========== ===========
</TABLE>
The Company pays its Parent a management fee for traditional corporate
support functions, such as accounting operations, financial reporting and
analysis, human resources, marketing, and strategic planning. Affiliate revenue
sharing is a distribution to the Affiliate Banks and is based on each
affiliate's annual loan production.
The Parent funds certain additions to building and improvements through
capital contributions. The Parent made noncash capital contributions of
$3,527,674, $938,287, and $115,476 to the Company for the net cost of building
facilities in 1993, 1994, and 1995, respectively. In addition, the Parent has
made additional capital contributions to fund acquisitions. During 1994 and
1995, the Parent contributed $59,800,000 and $167,100,000, respectively to the
Company to fund the acquisitions of LAC and BancPLUS, respectively.
LAC and BancPLUS Mortgage Corp. sell a certain amount of their loan
production to an Affiliate Bank. Total loans sold to the Affiliate Bank, at
cost, during 1994 and 1995 were $204 million and $324 million, respectively.
Additionally, BMC charges the Affiliate Bank a fee, which totaled $509,000 and
$809,000 during 1994 and 1995, respectively, for arranging these transactions
and providing certain support services.
F-63
<PAGE> 208
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE
At December 31, 1994, LAC had available mortgage warehouse credit
facilities which permitted the Company to borrow a maximum amount of $275
million, collateralized by the mortgage loans held for sale by LAC. The
following table summarizes information regarding these facilities as of December
31, 1994:
<TABLE>
<S> <C>
Balance at end of year....................................... $ 174,015,589
Weighted average interest rate at end of year................ 7.23%
Maximum amount outstanding................................... $ 174,015,589
Average amount outstanding................................... 150,825,062
Contractual interest rate at end of year..................... 1.25% to 8.5%
Weighted average interest rate during the year............... 5.58%
</TABLE>
These facilities expired on May 27, 1995. The Company replaced these
facilities with a borrowing arrangement from the Parent and the Affiliate Banks
(Note 5). Also, during 1995, the Company entered into a credit facility for $200
million, of which $0 was outstanding at December 31, 1995.
7. SUPPLEMENTAL CASH FLOW INFORMATION
The Company transferred $890,203, $235,000, and $1,669,000 from mortgage
loans to real estate acquired by foreclosure in 1993, 1994, and 1995,
respectively. These transactions have been excluded from the accompanying
consolidated statements of cash flows.
For the years ended December 31, 1993, 1994, and 1995, income taxes of
$255,605, $396,431 and $2,852,641, respectively, were paid to the Parent.
Interest paid during the same years was $1,259,372, $4,578,611 and $18,529,118,
respectively.
8. LOAN SERVICING
The Company was servicing 243,116 and 445,665 loans at December 31, 1994
and 1995, respectively. The remaining principal balances on serviced loans
totaled approximately $18.4 billion and $33.4 billion at December 31, 1994 and
1995, respectively. At December 31, 1995, the geographic distribution of loans
serviced was 38% in Florida, 14% in California, and 48% in other states. Loans
serviced for others are not included in the accompanying consolidated balance
sheets. The accompanying balance sheets also do not include funds held in
fiduciary deposit accounts, as these funds are not assets of the Company. These
amounts averaged $262,000,000 and $407,000,000 during 1994 and 1995,
respectively.
In connection with its loan servicing activities, the Company makes certain
payments of property taxes and insurance premiums in advance of collecting them
from specific mortgagors and makes certain payments of attorneys' fees and other
costs related to loans in foreclosure. Also, in connection with servicing
mortgage-backed securities guaranteed by Government National Mortgage
Association ("GNMA") or Federal National Mortgage Association ("FNMA"), the
Company advances certain principal and interest payments to security holders
prior to their collection from specific mortgagors. These advances are presented
as receivables in the accompanying consolidated balance sheets.
Conforming conventional loans serviced by the Company are securitized
through FNMA or Federal Home Loan Mortgage Corporation ("FHLMC") programs on a
nonrecourse basis, whereby foreclosure losses are generally the responsibility
of FNMA and FHLMC and not the Company. Similarly, the government loans serviced
by the Company are securitized through GNMA programs, whereby the Company is
insured against loss by the FHA or partially guaranteed against loss by the VA.
F-64
<PAGE> 209
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is exposed to potential losses on loans partially guaranteed by
the VA in the event the VA elects to pay its guarantee amount instead of
repurchasing the loans. The Company incurred losses of $809,000, in 1995, but
did not incur any significant losses in 1993 or 1994 related to these loans. The
Company has also fulfilled certain pool commitments with loans that were sold
with recourse. Total principal outstanding of loans sold with recourse was
$64,415,000 and $144,490,000 at December 31, 1994 and 1995, respectively.
Management believes that its reserves for losses are adequate for any
contingencies that may arise from these loans.
9. COMMITMENTS AND CONTINGENCIES
The Company's fidelity bond requirements are satisfied through a policy
with underwriters at Lloyd's of London ("Lloyd's"). Maximum coverage is
$75,000,000 per occurrence, with a self-insurance program covering losses under
the deductible of $5,000,000 for the Parent as a whole. The Company is only
liable for losses up to its $250,000 deductible. At December 31, 1995, the
Company had errors and omissions insurance coverage through a policy with
Lloyd's in the amount of $35,000,000. Premiums on both policies have been paid
through August 1996.
The Company leases office space and equipment under various operating
leases expiring through 1998. Substantially all lease agreements for office
space contain renewal options and provide for increases in rental payments based
on the lessor's operating costs or the consumer price index.
The following is a schedule of future minimum rental payments, exclusive of
any contingent operating charges under certain leasing arrangements that have
initial or remaining noncancelable lease terms in excess of one year at December
31, 1995:
<TABLE>
<S> <C>
Year ending December 31:
1996................................................... $2,274,796
1997................................................... 1,200,805
1998................................................... 681,885
1999................................................... 395,047
----------
Total.......................................... $4,552,533
==========
</TABLE>
The Company is a party to certain pending legal proceedings arising from
matters incidental to its business. In the opinion of management and counsel,
the aggregate unreserved liability or loss, if any, of legal proceedings will
not have a significant effect on the consolidated financial condition, results
of operations or liquidity of the Company.
F-65
<PAGE> 210
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments as of December 31, 1995 is made in accordance with the requirements
of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts:
<TABLE>
<CAPTION>
1994
-------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Assets:
Cash................................................ $ 3,900,572 $ 3,900,572
Accounts receivable, net............................ 18,543,122 18,543,122
Mortgage loans held for sale, net................... 183,913,568 185,101,884
Mortgage loans held for investment, net............. 14,699,097 14,365,427
Liabilities:
Notes payable....................................... 248,214,485 248,214,485
Accounts payable and accrued liabilities............ 9,791,502 9,791,502
Off-balance sheet financial instruments:
Commitments to extend credit and sell loans......... 0 605,854
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Assets:
Cash................................................ $ 14,987,783 $ 14,987,783
Accounts receivable, net............................ 64,891,554 64,891,554
Mortgage loans held for sale, net................... 465,879,840 471,241,851
Mortgage loans held for investment, net............. 19,225,181 19,225,181
Liabilities:
Notes payable....................................... 653,055,514 653,055,514
Accounts payable and accrued liabilities............ 63,789,362 63,789,362
Off-balance sheet financial instruments:
Commitments to extend credit and sell loans......... 0 (4,084,450)
</TABLE>
The fair value estimates as of December 31, 1994 and 1995 are based on
pertinent information available to management as of the respective dates.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates, and
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following describes the methods and assumptions used by the Company in
estimating fair value amounts:
Cash, Accounts Receivable, Notes Payable, and Accounts Payable and Accrued
Liabilities
The carrying amount approximates fair value.
F-66
<PAGE> 211
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage Loans Held for Sale
Fair value is estimated using the quoted market prices for securities
backed by similar types of loans and dealer commitments to purchase loans on a
servicing retained basis.
Mortgage Loans Held for Investment
Fair value is estimated using quoted market prices for sales of whole loans
with similar characteristics, such as repricing dates, product type, and size.
In 1995, management's estimates of fair value of these loans does not materially
differ from cost.
Off-Balance Sheet Financial Instruments
Fair value represents the gain or loss on the Company's unclosed
commitments to originate or purchase loans and the Company's commitments to sell
loans. Both types of commitments take into consideration the remaining terms of
the agreements and the present creditworthiness of the counterparties.
11. DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
During December, 1995, the Company purchased options to buy $500 million of
U.S. Treasury securities in order to reduce its exposure to the impact of
falling interest rates on the value of its capitalized mortgage servicing
assets. The cost of the options of $6,600,000, net of accumulated amortization
of $41,000, is included in other assets. These options were terminated in
January 1996 and the realized gain was reflected as a reduction of PMSRs.
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business through the production and sale of mortgage
loans and the management of interest rate risk. These instruments include
short-term commitments (interest rate and points) to extend credit,
mortgage-backed securities mandatory forward commitments, put options to sell
mortgage-backed securities, and loans sold with recourse. These instruments
involve, to varying degrees, elements of credit and interest rate risk.
The Company's exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit, mortgage-backed securities
mandatory forward commitments, put options to sell mortgage-backed securities,
and loans sold with recourse is represented by the contractual or notional
amounts of these instruments. As these off-balance sheet financial instruments
have essentially the same credit risk involved in extending loans, the Company
generally uses the same credit and collateral policies in making these
commitments and conditional obligations as it does for on-balance sheet
instruments.
At December 31, 1994 and 1995, financial instruments having potential
credit risk in excess of those reported in the consolidated balance sheets are
as follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL AMOUNTS 1994 1995
------------------------------- ------------ ------------
<S> <C> <C>
Commitments to extend credit.............................. $133,000,000 $418,000,000
Commitments to sell mortgage loans and mortgage-backed
securities.............................................. 288,000,000 863,000,000
Loans sold with recourse.................................. 64,415,000 144,490,000
</TABLE>
F-67
<PAGE> 212
BARNETT MORTGAGE COMPANY
(Acquired by HomeSide, Inc. on May 31, 1996 and now known as HomeSide Holdings,
Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CONCENTRATION OF CREDIT RISK
The Company has identified certain credit risk concentrations in relation
to its on- and off-balance sheet financial instruments. A credit risk
concentration results when the Company has a significant credit exposure to an
individual or a group engaged in similar activities or is affected similarly by
economic conditions.
A significant portion of the Company's financial instruments is transacted
with other financial institutions, various government agencies, and individual
investors. The Company does not have a credit risk concentration with any one
financial institution, agency, or individual. However, of the loans held by the
Company and sold with recourse, a majority are secured by residential real
estate in Florida.
13. RETIREMENT PLAN
The Company participates in the Parent's retirement, management and
incentive compensation, and health and welfare plans. The Company's share of
pension and 401(k) plans' costs and expenses allocated annually by the Parent
are as follows:
<TABLE>
<CAPTION>
PENSION 401(K)
PLANS PLAN
-------- --------
<S> <C> <C>
Year ended December 31:
1993......................................................... $ 96,192 $240,367
1994......................................................... 143,148 245,739
1995......................................................... 268,938 837,956
</TABLE>
The Company remits amounts expensed to the Parent for retirement plans and
for health and welfare plans. Amounts for the management and incentive
compensation plans are remitted directly to employees or to plans maintained on
their behalf.
Information from the Parent's retirement plans' administrator is not
available to permit the Company to determine its share of the vested and
nonvested retirement plan benefit obligations and plan assets. The weighted
average discount rate and rate of increase in future compensation levels used in
determining the actual present value of the projected benefit obligations were
8.90% and 4.50%, respectively, in 1994 and 7.30% and 4.00% in 1995. The expected
long-term rate of return on assets was 9.00% and 9.50% in 1994 and 1995,
respectively.
The Parent has estimated the accumulated postretirement benefit obligation
on a consolidated basis only and allocates costs to each subsidiary. No specific
estimate has been made for each subsidiary.
14. SUBSEQUENT EVENT
On March 4, 1996, the Parent entered into a transaction in which the stock
of Barnett Mortgage Company would be acquired by a newly formed entity in
exchange for one-third ownership of the new entity and cash. Under the terms of
the transaction, the Parent would retain its mortgage production units, continue
to originate mortgages and retain certain other assets.
F-68
<PAGE> 213
INDEPENDENT AUDITORS' REPORT
Board of Directors
BancPLUS Financial Corporation:
We have audited the accompanying consolidated statements of financial
condition of BancPLUS Financial Corporation and subsidiary as of December 31,
1993 and 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Honolulu Mortgage Company, Inc., a wholly-owned subsidiary of
BancPLUS Mortgage Corp., which statements reflect total assets constituting 16%
and 20% and total revenues constituting 17% and 14% of the related 1993 and 1994
consolidated totals, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Honolulu Mortgage Company, Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of BancPLUS Financial Corporation and
subsidiary as of December 31, 1993 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in note 2(j) to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
San Antonio, Texas
March 17, 1995
F-69
<PAGE> 214
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................. $ 4,096 $ 7,901
Mortgage loans held for sale, at lower of cost or market (note 6)...... 417,695 120,871
Accounts receivable and accrued interest, net of allowance for
uncollectible amounts of $3,031 in 1993 and $2,621 in 1994........... 33,941 29,836
Mortgage loan administration contracts, net of accumulated amortization
of $91,079 in 1993 and $116,167 in 1994 (note 3)..................... 118,265 117,716
Real estate acquired through foreclosure............................... 599 1,694
Properties and equipment, net (note 4)................................. 10,595 10,435
Prepaid expenses and other assets...................................... 8,100 5,640
-------- --------
Total assets................................................. $593,291 $294,093
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable (note 5)............................................... 508,342 237,586
Accounts payable and accrued expenses................................ 54,073 23,490
Reserves for losses.................................................. 13,300 11,400
-------- --------
Total liabilities............................................ 575,715 272,476
-------- --------
Commitments and contingencies (notes 3, 5, 6, 8, 10 and 11)
Stockholders' equity (note 5):
Common stock, par value $.01 per share -- 200,000 shares authorized;
100,000 shares issued and outstanding............................. 1 1
Preferred stock, par value $.01 per share ($10,000 liquidation
preference) -- 100,000,000 shares authorized; 1,284,783 and
1,460,125 shares issued and outstanding in 1993 and 1994,
respectively...................................................... 13 15
Additional paid-in capital........................................... 20,174 20,173
Retained earnings (accumulated deficit).............................. (2,612) 1,428
-------- --------
Total stockholders' equity................................... 17,576 21,617
-------- --------
Total liabilities and stockholders' equity................... $593,291 $294,093
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-70
<PAGE> 215
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1993 1994
-------- -------
<S> <C> <C>
INCOME
Loan administration..................................................... $69,471 $62,253
Loan origination........................................................ 42,053 16,184
Gain on sale of mortgage loan administration contracts.................. 11,334 24,348
Interest income, net of interest expense of $23,732 in 1993 and $15,959
in 1994.............................................................. (1,004) (2,019)
Other................................................................... 1,199 1,190
------- -------
Total income.................................................... 123,053 101,956
------- -------
EXPENSES
Personnel............................................................... 48,977 42,798
Occupancy and equipment................................................. 5,803 6,924
Provision for foreclosure costs......................................... 4,528 3,050
Amortization of mortgage loan administration contracts.................. 58,808 25,175
Other general and administrative........................................ 17,198 15,797
------- -------
Total expenses.................................................. 135,314 93,744
------- -------
Income (loss) before income taxes, extraordinary item, and
cumulative effect of a change in accounting principle............. (12,261) 8,212
Income taxes (note 9)..................................................... (4,228) 3,107
------- -------
Income (loss) before extraordinary item and cumulative effect of
a change in accounting principle.................................. (8,033) 5,105
Extraordinary loss resulting from extinguishment of debt, net of income
tax benefit of $548 (note 5)............................................ -- (1,064)
Cumulative effect on prior years of a change in accounting for income
taxes................................................................... (264) --
------- -------
Net income (loss)............................................... $(8,297) $ 4,041
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-71
<PAGE> 216
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PREFERRED PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT) EQUITY
------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992....... $1 $12 $20,175 $ 5,685 $25,873
Net loss......................... -- -- -- (8,297) (8,297)
Preferred stock
dividends-in-kind............. -- 1 (1) -- --
--
--- ------- ------- -------
Balance at December 31, 1993....... 1 13 20,174 (2,612) 17,576
Net income....................... -- -- -- 4,041 4,041
Preferred stock
dividends-in-kind............. -- 2 (1) (1) --
--
--- ------- ------- -------
Balance at December 31, 1994....... $1 $15 $20,173 $ 1,428 $21,617
== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-72
<PAGE> 217
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................. $ (8,297) $ 4,041
---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................... 1,559 1,958
Amortization............................................... 58,832 25,199
Provision for foreclosure costs............................ 4,528 3,050
Capitalized excess servicing fees.......................... (1,161) (330)
Non-cash interest expense.................................. 1,168 1,497
Gain on sales of servicing................................. (11,334) (24,348)
Proceeds from sales of servicing........................... 8,924 32,065
Extraordinary loss resulting from extinguishment of debt... -- 1,064
Cumulative effect of a change in accounting principle...... 264 --
Deferred tax benefit....................................... (4,583) (270)
Changes in operating assets and liabilities:
Increase in accounts receivable and other assets......... (9,040) (4,713)
Loans originated or acquired for sale.................... (3,240,339) (1,703,896)
Proceeds from sales of loans............................. 3,127,539 1,991,424
Net increase (decrease) in warehouse debt................ 110,735 (269,085)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 9,823 (9,647)
---------- ----------
Total adjustments to net income (loss)................ 56,915 43,968
---------- ----------
Net cash provided by operating activities............. 48,618 48,009
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of mortgage loan administration contracts........... (33,455) (38,198)
Real estate acquired through foreclosure...................... (1,421) (1,648)
Proceeds from sales of foreclosed real estate................. 816 1,259
Purchases of properties and equipment......................... (4,117) (1,796)
---------- ----------
Net cash used in investing activities................. (38,177) (40,383)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................................... 725,150 400,936
Principal payments on notes payable........................... (739,084) (402,630)
Loan fees paid................................................ -- (2,127)
---------- ----------
Net cash used in financing activities................. (13,934) (3,821)
---------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... (3,493) 3,805
CASH AND CASH EQUIVALENTS
Beginning of year............................................. 7,589 4,096
---------- ----------
End of year................................................... $ 4,096 $ 7,901
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-73
<PAGE> 218
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994
(1) REPORTING ENTITY
BancPLUS Financial Corporation (the Company) was incorporated in 1991 for
the purpose of acquiring all of the capital stock of BancPLUS Mortgage Corp.
(BancPLUS Mortgage), and its only substantive operations to date have involved
such activities. The purchase of the stock of BancPLUS Mortgage was effective as
of September 1, 1991.
The accompanying consolidated financial statements include the operations
of the Company and BancPLUS Mortgage. All significant intercompany balances and
transactions have been eliminated in consolidation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Mortgage Loans Held for Sale
Mortgage loans held for sale are stated at the lower of cost or market
value as determined in the aggregate. The cost basis of mortgage loans includes
loan principal outstanding, adjusted for discounts or premiums. Loan fees and
direct costs associated with the origination of mortgage loans, which are
deferred and recognized when the loans are sold, are reflected as deferred
revenue in the financial statements. Commitment fees paid to permanent investors
are recognized as expense when the related loans are sold or when it becomes
evident that the commitment will not be used. The market value of mortgage loans
covered by investor commitments is based on commitment prices. The market value
of uncommitted mortgage loans is determined by current investor yield
requirements. Differences between the carrying amounts of mortgage loans and
sales proceeds are recognized at the time of sale.
When mortgage loans are sold with servicing rights retained and the actual
servicing fees to be received differ from normal servicing fees for similar
loans, an additional gain or loss is recognized. This gain or loss represents
the present value of the difference between the actual and the normal servicing
fees over the remaining lives of the loans, adjusted for anticipated
prepayments. The excess servicing fees receivable resulting from the recognition
of these gains are included in mortgage loan administration contracts.
Loans are placed on nonaccrual status when any portion of the principal or
interest is ninety days past due or earlier when concern exists as to the
ultimate collectibility of principal or interest. When loans are placed on
nonaccrual status, the related interest receivable is reversed against interest
income of the current period. Interest payments received on nonaccrual loans are
applied as a reduction of the principal balance when concern exists as to the
ultimate collection of principal; otherwise, such payments are recognized as
interest income. Loans are removed from nonaccrual status when principal and
interest become current and they are estimated to be fully collectible.
(b) Allowance for Uncollectible Receivables
An allowance is maintained for estimated uncollectible advances made
primarily in connection with BancPLUS Mortgage's responsibilities as servicer
for loans in Government National Mortgage Association (GNMA) pools. The
allowance represents that portion of the advances made as of the date of the
financial statements that are not expected to be reimbursed. The allowance is
increased by provisions charged to earnings and reduced by receivable
charge-offs, net of recoveries.
(c) Mortgage Loan Administration Contracts
Mortgage loan administration contracts are recorded at cost, which does not
exceed the present value of future net servicing income, net of amortization.
Mortgage loan administration contracts are amortized in the
F-74
<PAGE> 219
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
current period on an accelerated method that approximates the proportion that
current net servicing income bears to anticipated total net servicing income
from the related loans. In connection with the periodic evaluation of the
amortization of mortgage loan administration contracts, the Company compares the
recorded investment in mortgage loan administration contracts to the value of
the expected future net servicing income determined on a disaggregated,
undiscounted basis. Differences representing an excess of recorded investment
over expected future net servicing income are charged to earnings through an
additional current period charge to amortization.
Included in mortgage loan administration contracts at December 31, 1994 was
$2,428,000 of excess servicing fees receivable. This amount represents the
present value of future servicing fees in excess of the normal fee. These
receivables are amortized in the current period on an accelerated method that
approximates the proportion that the current servicing fees bear to anticipated
total servicing fees to be received from the related loans. The receivable
balance is revalued periodically using current prepayment estimates and original
discount rates and, if so indicated, is written down to the present value of the
estimated remaining future excess service fee revenue through an additional
charge to amortization. If the receivable balance is less than the present value
of the estimated remaining future excess service fee revenue due to favorable
prepayment experience, amortization is adjusted prospectively.
(d) Reserve for Losses
A reserve for losses is maintained for estimated foreclosure losses
associated primarily with BancPLUS Mortgage's responsibilities as servicer for
loans in GNMA pools. The required level of reserves is determined on an
undiscounted basis by analysis of such factors as the prevailing level of loan
delinquencies, anticipated reinstatement rates from the various stages of
delinquency, and loss experience on similar loans serviced. This reserve
represents that portion of the estimated foreclosure losses for which BancPLUS
Mortgage does not have an outstanding receivable as of the date of the financial
statements, but for which an expected loss is estimable based on loan
delinquencies and other characteristics of the loans serviced. The reserve is
increased by provisions charged to earnings and by purchase price adjustments on
certain acquisitions of mortgage loan administration contracts. The reserve is
reduced by charge-offs, net of recoveries.
(e) Real Estate Acquired Through Foreclosure
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value on their acquisition dates and at the lower of such
initial amount or current fair value thereafter.
(f) Properties and Equipment
Properties and equipment are stated at cost less accumulated depreciation
and are depreciated using the straight-line method over their estimated useful
lives.
Maintenance, repairs, and minor renewals are charged to expense.
Betterments and major renewals are capitalized. Upon retirement or disposition,
both the asset cost and the related accumulated depreciation are written off and
gains or losses are included in operations.
(g) Loan Administration
Loan administration fees represent a participation in interest collections
on loans serviced for investors, normally based on a stipulated percentage of
the outstanding monthly principal balance of the loans. Loan administration fees
are recognized as income when received. Loan administration costs are charged to
expense as incurred.
F-75
<PAGE> 220
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Loan Origination
Fees and direct loan costs associated with the origination of single-family
residential loans held for sale are recognized when the related loans are sold.
Direct loan costs have not been reclassified against loan origination income.
(i) Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of
three months or less at the date of acquisition.
(j) Federal Income Taxes
BancPLUS Financial Corporation files a consolidated federal income tax
return which includes the operations of BancPLUS Mortgage.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and has reported the
cumulative effect of this change in accounting for income taxes in the
consolidated statement of operations for the year ended December 31, 1993.
Statement 109 required a change from the deferred method of accounting for
income taxes required under APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method specified in
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recoverable or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date.
(3) SERVICING INFORMATION
BancPLUS Mortgage acts as a correspondent for investors in securing and
servicing loans. BancPLUS Mortgage was servicing approximately 197,000 loans
with an aggregate unpaid principal balance of approximately $14,013,000,000 at
December 31, 1994. Amounts capitalized in connection with acquiring the right to
service mortgage loans were approximately $35,970,000 and $25,980,000 for the
years ended December 31, 1993 and 1994, respectively.
As of December 31, 1994, 24% of the servicing portfolio balance was secured
by properties in California, 13% in Texas, and 13% in Hawaii. There were no
other state concentrations in excess of 10% and there were loans in all 50
states. The portfolio included approximately 26% Federal Housing Administration
(FHA) loans in Government National Mortgage Association (GNMA) pools and 11%
Department of Veterans Affairs (VA) loans in GNMA pools. Federal National
Mortgage Association (FNMA) loans comprised approximately 37% of the portfolio
and Federal Home Loan Mortgage Corporation (FHLMC) loans comprised approximately
19% of the portfolio. The remaining 7% of the portfolio was spread among various
other investors.
BancPLUS Mortgage is generally required to advance, from corporate funds,
escrow and foreclosure costs for loans which it services. A portion of these
advances is not recoverable for the loans in GNMA pools. Upon foreclosure, an
FHA or VA property is typically conveyed to the Department of Housing and Urban
Development (HUD) or VA. However, VA has the authority to deny conveyance of the
foreclosed property and to reimburse BancPLUS Mortgage based on a percentage of
the loan's outstanding principal balance. BancPLUS Mortgage assumes
responsibility for the disposition of properties on which VA has denied
conveyance.
F-76
<PAGE> 221
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the servicing portfolio at December 31, 1994 were approximately
$79,656,000 of loans serviced for FNMA or private investors and $1,166,000 of
uninsured conventional loans for which there is recourse to BancPLUS Mortgage in
the event of foreclosure.
Anticipated losses associated with these activities are provided for in the
consolidated financial statements. Actual losses have been within management's
expectations.
Custodial funds for the payment of insurance and taxes and unremitted
principal and interest are segregated in separate bank accounts excluded from
BancPLUS Mortgage's assets and liabilities. Such custodial funds approximated
$212,754,000 at December 31, 1994.
The Company carries blanket fidelity bond coverage in the aggregate amount
of $15,700,000 and errors and omissions coverage in the aggregate amount of
$16,000,000 at December 31, 1994.
(4) PROPERTIES AND EQUIPMENT
The following is a detail of properties and equipment at December 31, 1993
and 1994 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
IN YEARS 1993 1994
----------- ------- -------
<S> <C> <C> <C>
Building and improvements............................ 5 - 30 $ 6,660 $ 7,186
Data processing equipment............................ 3 - 7 3,439 4,109
Furniture, fixtures, and equipment................... 5 - 7 3,573 4,042
------- -------
13,672 15,337
Less accumulated depreciation........................ (3,077) (4,902)
------- -------
Properties and equipment, net.............. $10,595 $10,435
======= =======
</TABLE>
(5) NOTES PAYABLE
Notes payable consisted of the following at December 31, 1993 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Committed operating lines of credit:
Mortgage loans credit facility............................... $258,645 $ 88,239
Receivables credit facility.................................. 12,183 3,800
Working capital credit facility.............................. 2,600 --
Pool advance credit facility................................. -- 198
-------- --------
Total committed operating lines of credit................. 273,428 92,237
Uncommitted operating lines of credit:
Mortgage loans and mortgage backed securities credit
facility.................................................. 123,444 24,764
Term debt.................................................... 62,500 76,368
Subordinated notes........................................... 40,857 40,880
Mortgage on corporate headquarters........................... 3,613 3,337
Notes payable to related party............................... 4,500 --
-------- --------
Total notes payable.................................. $508,342 $237,586
======== ========
</TABLE>
The committed operating lines permitted BancPLUS Mortgage to borrow an
aggregate maximum amount of $282,000,000 at December 31, 1994. These agreements
expire during 1995. The uncommitted operating lines permitted BancPLUS Mortgage
to borrow an additional aggregate maximum amount of
F-77
<PAGE> 222
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$275,000,000 at December 31, 1994. These agreements also expire during 1995.
Borrowings under these agreements bear interest at rates ranging from the
federal funds rate plus 1% to a range of prime minus .75% to prime plus 1.25%,
reduced in proportion to compensating balances maintained at the banks.
Commitment fees paid relating to committed operating lines of credit outstanding
at December 31, 1994 totaled $901,000 and ranged from .31% to .57%. These
amounts are amortized over the term of the commitments and are included as a
component of interest expense. Non-usage fees for the committed operating lines
range from .125% to .25%.
These operating lines of credit are secured by mortgage loans and mortgage
backed securities and all rights relating to or to be reimbursed for principal
and interest advances and foreclosure advances. All of these operating lines of
credit are cross-collateralized and cross-defaulted.
The agreements provide for various financial covenants, the most
restrictive of which place limitations on debt, other investments, transactions
with affiliates, and the payment of dividends. The agreements also require the
maintenance of certain financial ratios, including minimums for net worth,
portfolio size, and funds from operations. As of December 31, 1994, BancPLUS
Mortgage was in compliance with all requirements of the creditor banks.
BancPLUS Mortgage had notes payable outstanding to a group of banks which
provided $76,368,000 of acquisition term financing at December 31, 1994. The
notes mature in 2000 and bear interest at prime plus 1.25%, reduced in
proportion to the amount of compensating balances maintained at the banks.
Quarterly installments of principal in the amount of $3,632,000 plus interest
are due through the year 1999. A final principal payment of $3,728,000 plus
interest is due February 7, 2000. The notes are secured by the servicing
portfolios of both BancPLUS Mortgage and Honolulu Mortgage Company, Inc., a
wholly-owned subsidiary of BancPLUS Mortgage (subject to the restrictions
required by GNMA, FNMA, and FHLMC), and all of the issued and outstanding shares
of capital stock of certain BancPLUS Mortgage subsidiaries. These notes contain
financial covenants similar to those contained in the operating lines of credit
agreements. BancPLUS Mortgage met all of the requirements of the creditor banks
at December 31, 1994.
As of December 31, 1993 and 1994, BancPLUS Financial Corporation had
$41,000,000 of 11.5% subordinated notes outstanding. The notes become due
February 26, 2001 with annual redemptions of one-third of the original principal
to begin February 26, 1999. In connection with the issuance of those notes, the
note holders also acquired warrants to purchase 9,170 Stock Units (see note 10).
BancPLUS Mortgage has executed as co-maker with its subsidiary, Fiesta
Investments, Inc., a mortgage in the face amount of $4,150,000 to provide
financing for the purchase and improvement of its corporate headquarters. As of
December 31, 1994, $3,337,000 was outstanding on the note, which bears interest
at prime plus 1% (prime plus 2% beginning in 1995). The note requires monthly
principal installments of approximately $23,000 and matures on December 31,
1996.
Substantially all of the BancPLUS Mortgage debt is guaranteed by BancPLUS
Financial Corporation.
Aggregate cash payments for interest were $22,779,000 and $14,733,000
during the years ended December 31, 1993 and 1994, respectively.
During the first quarter of 1994, BancPLUS Mortgage refinanced all of its
operating lines of credit and term debt through a group of banks. As a result of
this refinancing, the Company recognized an extraordinary loss of $1,064,000
resulting from the write-off of certain unamortized commitment fees relating to
the refinanced debt.
F-78
<PAGE> 223
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
BancPLUS Mortgage had commitments at set prices and rates, which generally
were less than a year in duration, to make and purchase loans of approximately
$61,259,000 and to sell loans of approximately $107,344,000 at December 31,
1994. BancPLUS Mortgage also had commitments to make and purchase loans of
approximately $55,200,000 at December 31, 1994 for which prices and rates had
not been set. Market risk exists on the commitments to make and purchase loans
for which prices and rates are set as a result of potential future fluctuations
in mortgage interest rates. To mitigate this risk, BancPLUS Mortgage has entered
into sales agreements which, viewed independent of the related commitments to
make or purchase loans, are subject to offsetting market risk should there be
fluctuations in mortgage interest rates. All loans in the warehouse are covered
by these forward sales agreements. BancPLUS Mortgage conducts forward sales on a
percentage of the loans in process and, to a lesser extent, may use options to
hedge all or a portion of any remaining loans in process. Gains or losses on
options are deferred and recognized at the time the related mortgage loans are
sold or upon expiration of the option term. At December 31, 1994, such options
had a carrying value of $197,000 and a fair value of $134,000.
All loans are collateralized by the underlying real estate. The gross
amount of the commitments to make and purchase loans represents BancPLUS
Mortgage's maximum exposure to credit risk. To mitigate credit risk, BancPLUS
Mortgage securitizes and sells conventional loans on a non-recourse basis, and
securitizes and sells government loans through programs under which VA partially
guarantees or FHA insures BancPLUS Mortgage against credit risk.
BancPLUS Mortgage has been named as a defendant in various lawsuits arising
in the normal course of business. Management intends to vigorously defend the
lawsuits and is of the opinion that their resolution will not have a material
adverse effect on the accompanying financial statements.
BancPLUS Mortgage has obligations under various operating leases. Lease
expense was $3,670,000 and $4,628,000 for the years ended December 31, 1993 and
1994, respectively. Additionally, BancPLUS Mortgage leases a portion of its
corporate headquarters facility to outside tenants. The future minimum rent
payments and receipts as of December 31, 1994 relating to these leasing
activities were as follows (in thousands):
<TABLE>
<CAPTION>
LEASE LEASE
PAYMENTS INCOME
-------- ------
<S> <C> <C>
1995...................................................... $2,272 $601
1996...................................................... 1,713 449
1997...................................................... 978 247
1998...................................................... 532 95
1999 and thereafter....................................... 399 13
</TABLE>
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates along
with the methods and assumptions used in developing such estimates are set forth
below for the Company's financial instruments.
Cash, Receivables and Payables -- The carrying amount approximates fair
value because these instruments are of short duration and do not present
significant credit concerns.
Mortgage Loans Held for Sale -- The fair value of mortgage loans held for
sale and covered by investor commitments is based on commitment prices. The fair
value of uncommitted mortgage loans is determined using current investor yield
requirements.
F-79
<PAGE> 224
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excess Servicing Fees Receivable -- The fair value of excess servicing fees
receivable is determined by discounting the expected future cash flows using
current prepayment estimates.
Notes Payable -- The carrying amount approximates fair value due to the
variable interest rates associated with this debt. The fair value of the
subordinated notes is determined in accordance with the redemption requirements
of the notes.
The estimated fair values of the Company's financial instruments are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents.................................... $ 7,901 $ 7,901
Mortgage loans held for sale................................. 120,871 120,895
Receivables, net of allowance................................ 29,836 29,836
Excess servicing fees receivable............................. 2,428 4,230
-------- --------
Total financial assets............................... $161,036 $162,862
======== ========
FINANCIAL LIABILITIES:
Notes payable................................................ 237,586 237,706
Payables..................................................... 23,490 23,490
-------- --------
Total financial liabilities.......................... $261,076 $261,196
======== ========
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Fixed commitments to make and purchase loans................. 61,259 61,294
Floating commitments to make and purchase loans.............. 51,359 51,359
-------- --------
Total commitments to make and purchase loans......... $112,618 $112,653
======== ========
Commitments to sell loans, into which specific loans have not
been allocated............................................ $ 14,830 $ 14,877
======== ========
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no ready market exists for a portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected losses, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets that are not considered
financial instruments include mortgage loan administration contracts, net of
excess servicing fees receivable and properties and equipment. In addition, the
tax ramifications related to the realization of unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in the estimates.
F-80
<PAGE> 225
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS
BancPLUS Mortgage sponsors a savings and investment plan in which employees
may contribute a portion of their compensation. BancPLUS Mortgage matches a
portion of employee contributions, subject to the plan's defined vesting
schedule.
Honolulu Mortgage Company, Inc. sponsors a retirement plan which covers
substantially all of its employees. This retirement plan includes an employee
savings option with partial matching by Honolulu Mortgage Company, Inc. Annual
contributions are discretionary as defined in the plan agreement and such
contributions are funded on a current basis.
Total expense relating to these plans was $468,000 and $680,000 for the
years ended December 31, 1993 and 1994, respectively.
(9) INCOME TAXES
The components of income taxes for the years ended December 31, 1993 and
1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- ------
<S> <C> <C>
Current expense........................................... $ 355 $3,377
Deferred benefit.......................................... (4,583) (270)
------- ------
Total................................................ $(4,228) $3,107
======= ======
</TABLE>
The expected income taxes for the years ended December 31, 1993 and 1994
differ from the recorded amounts as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
-------- ------
<S> <C> <C>
Income (loss) before income taxes, extraordinary item, and
cumulative effect of a change in accounting principle........ $(12,261) $8,212
======== ======
Income tax at 34% statutory rate............................... (4,169) 2,792
Increase (decrease) in tax resulting from:
State and local income taxes................................. 28 248
Other, net................................................... (87) 67
-------- ------
Income tax expense (benefit)......................... $ (4,228) $3,107
======== ======
</TABLE>
F-81
<PAGE> 226
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below (in thousands):
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Deferred tax assets:
Accruals not currently deductible for income tax purposes...... $ 673 $1,005
Valuation allowances........................................... 5,475 4,771
Excess of tax over book basis for organization costs........... 896 700
Properties and equipment, principally due to differences in
depreciation................................................ 130 88
Deferred installment sale income............................... -- 304
Other.......................................................... 103 150
------ ------
Total deferred tax assets.............................. 7,277 7,018
------ ------
Deferred tax liabilities:
Excess of book over tax basis for mortgage loan administration
contracts................................................... 5,972 5,136
Accounts receivable, principally due to allowance for
uncollectible accounts...................................... 412 533
Other.......................................................... -- 186
------ ------
Total deferred tax liabilities......................... 6,384 5,855
------ ------
Net deferred tax asset................................. $ 893 $1,163
====== ======
</TABLE>
Management believes that realization of the deferred tax assets is more
likely than not based on the expectation that such benefits will be utilized in
future consolidated tax returns.
At December 31, 1993, the net deferred tax asset of $893,000 was comprised
of $1,377,000 of deferred income tax benefit (included in prepaid expenses and
other assets) and $484,000 of deferred state income taxes payable (included in
accounts payable and accrued expenses). Prepaid expenses and other assets also
included $983,000 of current income taxes recoverable at December 31, 1993. At
December 31, 1994, the net deferred tax asset of $1,163,000 was comprised of
$1,473,000 of deferred income tax benefit (included in prepaid expenses and
other assets) and $310,000 of deferred state income taxes payable (included in
accounts payable and accrued expenses). Accounts payable and accrued expenses
also included $1,411,000 of current income taxes payable at December 31, 1994.
Aggregate cash payments for income taxes were $1,907,000 and $1,470,000
during the years ended December 31, 1993 and 1994, respectively.
(10) STOCKHOLDERS' EQUITY AND RELATED PARTY TRANSACTIONS
Under a Management Shareholders Agreement between the Company and its
shareholders, certain restrictions exist with respect to the transfer of shares
between shareholders which provide that the Company has a right of first refusal
on any transfer of shares to third parties. The terms of this Management
Shareholders Agreement include provisions whereby the Company may be required to
acquire the outstanding shares of specified "management shareholders" at "fair
value" in the event of termination of employment of such individuals in certain
cases. The agreement provides that any requirement of the Company to purchase
shares of terminated management shareholders expires on the day the common stock
of the Company is listed or admitted to trading on a national securities
exchange or quoted by NASDAQ.
The Company's preferred stock outstanding has a stated $1.30 per share
annual dividend which is payable quarterly and is cumulative. The Company
declared preferred stock dividends-in-kind, recorded at par value, of 159,300
and 181,041 shares during 1993 and 1994, respectively of which 41,755 and 47,454
were issued
F-82
<PAGE> 227
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
(Acquired by Barnett Mortgage Company on February 28, 1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 1, 1994 and 1995, respectively. The preferred shares have a liquidation
preference of $10 per share (exclusive of accrued dividends) and are redeemable
at the Company's option on or after October 31, 1996 for $10 per share.
In connection with the issuance of the 11.5% subordinated notes, the note
holders acquired warrants to purchase 9,170 Stock Units at a price of $202.71
per Unit. The warrants expire February 26, 2001. Each Stock Unit entitles the
holder to acquire 1 share of common stock and 10.271 shares of preferred stock
as of the warrant issuance date, adjusted proportionately for subsequent
issuances of stock. The value of the warrants of $186,000 was allocated to
additional paid in capital at the date of issuance.
Effective October 18, 1991, the Company granted options to the Chairman and
Chief Executive Officer of BancPLUS Mortgage to purchase up to 5,263 shares of
common stock at $95 per share and 52,632 shares of preferred stock at $9.50 per
share. The options are exercisable immediately and expire in ten years. Any
exercise must be made to acquire a proportionate number of common and preferred
shares. As of December 31, 1994, none of the options had been exercised.
From time to time, the Company's mortgage banking subsidiaries may make
mortgage loans to its officers and employees in the normal course of business.
The terms of such mortgage loans will be substantially similar to those provided
to the public, but may, in certain circumstances, be more favorable to such
officers or employees. It is the Company's policy to waive the origination fee
on officer and employee residential mortgage loans. Such mortgage loans are sold
to investors in the secondary market in the ordinary course of business.
Substantially all of the Company's net assets are attributable to BancPLUS
Mortgage's net assets, which are restricted. (See Note 5).
(11) BANCPLUS GROUP PERFORMANCE SHARE PLAN
Effective April 28, 1993, the Company adopted the BancPLUS Group
Performance Share Plan, pursuant to which designated employees of BancPLUS
Mortgage may be awarded "Performance Shares" entitling them to cash bonus
payments in the event of (1) distributions to common shareholders (after
outstanding preferred stock has been effectively redeemed and specified
distributions have been made to existing common shareholders), (2) termination
of employment in certain cases or (3) a change of control of the Company. These
Performance Shares vest ratably over a five-year period subsequent to the date
of grant unless the Company determines a different vesting schedule at the time
of grant. As of December 31, 1994, none of the events which trigger a cash bonus
have occurred.
A maximum of 3,627 Performance Shares are currently authorized under the
BancPLUS Group Performance Share Plan. As of December 31, 1994, a total of 3,500
Performance Shares have been issued under the Plan.
(12) SUBSEQUENT EVENTS
On February 28, 1995, all of the outstanding stock of BancPLUS Financial
Corporation was acquired by Barnett Mortgage Company. Barnett Mortgage Company
is a wholly-owned subsidiary of Barnett Banks, Inc., a registered bank holding
company headquartered in Jacksonville, Florida. The acquisition will be
accounted for as a purchase.
On February 28, 1995, the Company also repaid all its subordinated notes
outstanding and redeemed all of its outstanding preferred stock, stock warrants,
stock options, and Performance Shares. Additionally, BancPLUS Mortgage repaid
the mortgage on its corporate headquarters.
F-83
<PAGE> 228
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND PROSPECTUS SUPPLEMENT IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUER OR THE UNDERWRITERS. THIS PRICING SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AND PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
UNTIL --, 1997 (90 DAYS AFTER THE DATE OF THIS PRICING SUPPLEMENT), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS, PROSPECTUS SUPPLEMENT AND
PRICING SUPPLEMENT. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS, PROSPECTUS SUPPLEMENT AND PRICING SUPPLEMENT WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=======================================================
TABLE OF CONTENTS
<TABLE>
<S> <C>
PRICING SUPPLEMENT
Use of Proceeds................................ PS-2
Capitalization................................. PS-3
Description of Notes........................... PS-4
Supplemental Plan of Distribution.............. PS-5
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.................. S-3
Risk Factors................................... S-11
Description of Notes........................... S-17
United States Federal Income Tax
Considerations............................... S-32
Plan of Distribution........................... S-38
PROSPECTUS
Additional Information......................... 2
HomeSide....................................... 3
Use of Proceeds................................ 5
Selected Consolidated Financial Information.... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations
-- HomeSide.................................. 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
-- HLI....................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations
-- HHI....................................... 31
Industry Overview.............................. 41
Business....................................... 44
HomeSide................................... 44
HLI -- Historical Business................. 55
HHI -- Historical Business................. 59
The Acquisitions............................... 64
Management..................................... 66
Security Ownership of Certain Beneficial Owners
and Management............................... 75
Certain Relationships and Related
Transactions................................. 77
Description of Certain Indebtedness............ 81
Description of the Parent Notes................ 86
Description of Debt Securities................. 88
Plan of Distribution........................... 98
Legal Matters.................................. 99
Experts........................................ 99
Index to Financial Statements.................. F-1
</TABLE>
Pricing Supplement
HOMESIDE LENDING, INC.
$--,000,000
- --% NOTES DUE --
[HOMESIDE LOGO]
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
NATIONSBANK CAPITAL MARKETS, INC.
SMITH BARNEY INC.
Dated --, 1997
<PAGE> 229
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions, to be paid by the Registrants, are estimated as follows:
<TABLE>
<S> <C>
Registration fee under Securities Act........................... $303,031
Legal fees...................................................... *
Accounting fees................................................. *
Printing and engraving.......................................... *
Transfer agent fees............................................. *
Miscellaneous................................................... *
--------
Total...................................................... $ *
========
</TABLE>
- ---------------
* To be provided by Amendment.
All amounts except the Registration fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 607.0850 of the Florida Business Corporation Act permits a
corporation to indemnify its directors and officers against liability incurred
in their capacity as such or by reason of service at the request of the
corporation as a director, officer, employee or agent of another corporation (i)
if such director or officer acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; and (ii) in certain
other circumstances.
Article IX of the By-laws of the HLI provides as follows:
INDEMNIFICATION
SEC. 1. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a Director or officer of the corporation or
served, at the written request of the President of the corporation, as a
Director or officer of another corporation (all of whom are hereinafter in this
Article referred to in the aggregate as "indemnified persons" and in the
singular as an "indemnified person") against expenses (including attorneys' fees
except as otherwise stated in Section 3 of this Article), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by a judgement, order, settlement, adjudication or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SEC. 2. The corporation shall indemnify any indemnified person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgement in its favor against expenses (including attorneys' fees except as
otherwise stated in Section 3 of this Article) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any
II-1
<PAGE> 230
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
SEC. 3. The corporation will be entitled to participate at it own expense
in the defense and, if it so elects, to assume the defense of any claim, action,
suit or proceeding. If the corporation elects to assume the defense, such
defense shall be conducted by counsel of good standing, chosen by it. In the
event the corporation elects to assume the defense of any such claim, action,
suit or proceeding and retain such counsel, the indemnified persons shall bear
the fees and expense of any additional counsel retained by them, unless there
are conflicting interests as between the corporation and the indemnified persons
that are for valid reasons objected to in writing by the indemnified persons.
SEC. 4. In discharging his duty to the corporation, an indemnified person,
when acting in good faith, may rely upon financial statements of the corporation
represented to him to be correct by the officer of the corporation having charge
of its books of accounts, or stated in a written report by an independent public
or certified public accountant or firm of such accountants fairly to reflect the
financial condition of such corporation.
SEC. 5. Any indemnification under this Article IX (unless ordered by a
court) shall be made only as authorized in the specific case upon a
determination (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such quorum is not obtainable, or, even if obtainable, when a quorum
of disinterested Directors so directs, by independent legal counsel in a written
opinion that the indemnified person has met the standards of conduct set forth
in this Article IX or (3) by the stockholder or stockholders.
SEC. 6. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in Section 5 of this Article IX upon receipt of an undertaking
by or on behalf of the indemnified person to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article IX.
SEC. 7. The indemnification provided by this Article IX shall not be
deemed exclusive of any other rights to which any indemnified person may be
entitled under any agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SEC. 8. The Board of Directors shall have power on behalf of the
corporation to grant indemnification to any person other than an indemnified
person to such extent as the Board in its discretion may from time to time and
at any time determine, but in no event to exceed the indemnification provided by
this Article IX.
SEC. 9. If any part of this Article IX shall be found, in any action, suit
or proceeding, to be invalid or ineffective, the validity and the effect of the
remaining parts shall not be affected.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company has not issued any securities.
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<PAGE> 231
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. Unless otherwise indicated, all Exhibits have been previously
filed or are incorporated by reference to the Parent's Registration Statement on
Form S-4, No. 333-06737.
<TABLE>
<S> <C>
1.1* Form of Distribution Agreement.
3.1* Certificate of Incorporation of HomeSide Lending, Inc.
3.2* By-Laws of HomeSide Lending, Inc.
4.1* Form of Indenture.
4.2* Form of Fixed Rate Medium-Term Note.
4.3* Form of Floating Rate Medium-Term Note.
5.1* Form of opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation
regarding legality of the securities being registered.
8.1* Form of opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation,
regarding certain tax matters.
10.1 Stock Purchase Agreement dated December 11, 1995 between HomeAmerica Capital,
Inc. (currently known as HomeSide, Inc.) and The First National Bank of Boston
(the "BBMC Purchase Agreement").
10.2 Amendment No. 1, dated as of March 15, 1996, to the BBMC Purchase Agreement.
10.3 Marketing Agreement dated as of March 15, 1996 between HomeSide, Inc. and The
First National Bank of Boston.
10.4 Repurchase of Mortgage Loan Servicing Rights Letter Agreement between The
First National Bank of Boston and BancBoston Mortgage Corporation (currently
known as HomeSide Lending, Inc.)
10.5 Operating Agreement effective as of March 15, 1996 between The First National
Bank of Boston and BancBoston Mortgage Corporation (currently known as
HomeSide Lending, Inc.)
10.6 Brokered Loan Purchase and Sale Agreement dated as of March 15, 1996 between
BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
and each of The First National Bank of Boston, Bank of Boston Connecticut,
Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.7 Master Take-Out Commitment dated as of March 15, 1996 between BancBoston
Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of
The First National Bank of Boston, Bank of Boston Connecticut, Rhode Island
Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.8 Neighborhood Assistance Corporation of America Mortgage Loan Take-Out
Commitment dated as of March 15, 1996 between BancBoston Mortgage Corporation
(currently known as HomeSide Lending, Inc.) and The First National Bank of
Boston.
10.9+ PMSR Flow Agreement dated as of March 15, 1996 between BancBoston Mortgage
Corporation (currently known as HomeSide Lending, Inc.) and each of The First
National Bank of Boston, Bank of Boston Connecticut, Rhode Island Hospital
Trust National Bank and Bank of Boston Florida, N.A.
10.10+ Mortgage Loan Servicing Agreement dated as of March 15, 1996 between
BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
and each of The First National Bank of Boston, Bank of Boston Connecticut,
Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.11 Stock Purchase Agreement dated as of March 4, 1996 between GrantAmerica, Inc.
(currently known as HomeSide, Inc.) and Barnett Banks, Inc. (the "BMC Purchase
Agreement").
10.12 Amendment No. 1, dated as of May 31, 1996, to the BMC Purchase Agreement.
10.13 Tax Indemnity Letter Agreement dated as of March 4, 1996 between Barnett
Mortgage Company (currently known as HomeSide Holdings, Inc.) and Barnett
Banks, Inc.
</TABLE>
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<PAGE> 232
<TABLE>
<S> <C>
10.14 Amended and Restated Shareholder Agreement dated as of May 31, 1996 among
HomeSide, Inc. and the shareholders thereof.
10.15 Amended and Restated Registration Rights Agreement dated as of May 31, 1996
between HomeSide, Inc. and certain shareholders thereof.
10.16 Marketing Agreement dated as of May 31, 1996 between HomeSide, Inc. and
Barnett
Banks, Inc.
10.17 Transitional Services Agreement dated as of May 31, 1996 between Barnett
Banks, Inc., Barnett Mortgage Company (currently known as HomeSide Holdings,
Inc.) and HomeSide, Inc.
10.18 Operating Agreement dated as of May 31, 1996 between HomeSide Lending, Inc.
and Barnett Banks, Inc.
10.19+ Mortgage Loan Servicing Agreement dated as of April, 1996 between HomeSide
Lending, Inc. and Barnett Banks, Inc.
10.20+ PMSR Flow Agreement dated as of May 31, 1996 between HomeSide Lending, Inc.
and Barnett Banks, Inc.
10.21 Correspondent Agreement dated May 16, 1996 between HomeSide Lending, Inc. and
Barnett Banks, Inc.
10.22 Delegated Underwriting Agreement dated as of May 15, 1996 between HomeSide
Lending, Inc. and HomeSide Holdings, Inc.
10.23* Amended and Restated Credit Agreement dated as of January 31, 1997 among
HomeSide Lending, Inc., Honolulu Mortgage Company, Inc., the Lenders parties
thereto and The Chase Manhattan Bank, as Administrative Agent (the "Credit
Agreement").
10.24* Amended and Restated Holdings Pledge Agreement dated as of January 31, 1997
between HomeSide, Inc. and The Chase Manhattan Bank, as Administrative Agent
for the Lenders parties to the Credit Agreement.
10.25* Amended and Restated HomeSide Pledge Agreement dated as of January 31, 1997
between HomeSide Lending, Inc. and The Chase Manhattan Bank, as Administrative
Agent for the Lenders parties to the Credit Agreement.
10.26* Amended and Restated BMC Pledge Agreement dated as of January 31, 1997 between
HomeSide Holdings, Inc. and The Chase Manhattan Bank, as Administrative Agent
for the Lenders parties to the Credit Agreement.
10.27 Registration Rights Agreement dated as of May 14, 1996 among HomeSide, Inc.
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Smith Barney Inc. and Friedman, Billings, Ramsey & Co., Inc.
10.28* Amended and Restated Holdings Guaranty dated as of January 31, 1997 by
HomeSide, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent
for the Lenders parties to the Credit Agreement.
10.29* Amended and Restated HomeSide Guaranty dated as of January 31, 1997 by
HomeSide Lending, Inc. in favor of The Chase Manhattan Bank, as Administrative
Agent for the Lenders parties to the Credit Agreement.
10.30* Amended and Restated Subsidiaries Guaranty dated as of January 31, 1997 by
each of SWD Properties, Inc., Stockton Plaza, Inc., HomeSide Mortgage
Securities, Inc. and Honolulu Mortgage Company, Inc. in favor of The Chase
Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit
Agreement.
10.31* Amended and Restated BMC Guaranty dated as of January 31, 1997 by HomeSide
Holdings, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent
for the Lenders parties to the Credit Agreement.
10.32* Amended and Restated Security and Collateral Agency Agreement dated as of
January 31, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank,
as Administrative Agent for the Lenders parties to the Credit Agreement.
</TABLE>
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<PAGE> 233
<TABLE>
<S> <C>
10.33* Amended and Restated Security and Collateral Agency Agreement dated as of
January 31, 1997 between Honolulu Mortgage Company, Inc. and The Chase
Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit
Agreement.
10.34* Amended and Restated Security and Collateral Agency Agreement dated as of
January 31, 1997 between HomeSide Holdings, Inc. and The Chase Manhattan Bank,
as Administrative Agent for the Lenders parties to the Credit Agreement.
10.35 Intercreditor Agreement dated as of May 31, 1996 between HomeSide, Inc.,
HomeSide Holdings, The Bank of New York, as Trustee, and Chemical Bank, as
Administrative Agent under the Credit Agreement.
10.36 HomeSide, Inc. Time Accelerated Restricted Stock Option Plan.
10.37 HomeSide, Inc. Non-Qualified Stock Option Plan.
10.38 Class B Non-Voting Common Stock Issuance Agreement dated as of March 14, 1996
between HomeSide, Inc. and Smith Barney Inc.
10.39 Transitional Services Agreement dated as of March 15, 1996 between The First
National Bank of Boston and BancBoston Mortgage Corporation (currently known
as HomeSide Lending, Inc.)
10.40 Transitional Services Agreement dated as of March 15, 1996 between The First
National Bank of Boston and BancBoston Mortgage Corporation (currently known
as HomeSide Lending, Inc.)
10.41 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
Corporation (currently known as HomeSide Lending, Inc.) and The First National
Bank of Boston.
10.42 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
Corporation (currently known as HomeSide Lending, Inc.) and Thomas H. Lee
Company.
10.43 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage
Corporation (currently known as HomeSide Lending, Inc.) and Madison Dearborn
Partners, Inc.
10.44 Management Stockholder Agreement dated as of May 15, 1996 between HomeSide,
Inc., The First National Bank of Boston, Thomas H. Lee Equity Fund III, L.P.
and certain affiliates thereof, Madison Dearborn Capital Partners, L.P. and
certain employees of HomeSide, Inc. and its subsidiaries.
10.45 Management Agreement dated as of May 31, 1996 between HomeSide Lending, Inc.
and Barnett Banks, Inc.
10.46 Form of HomeSide Severance Agreement
10.47 Loan and Security Agreement dated January 15, 1997 between HomeSide Lending,
Inc. and The Chase Manhattan Bank.
10.48* First Amendment dated February 28, 1997 to Loan and Security Agreement dated
January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank
10.49** Second Amendment dated March , 1997 to Loan and Security Agreement dated
January 15, 1997 between HomeSide Lending, Inc. and the Chase Manhattan Bank.
12.1 HomeSide Lending, Inc. -- Computation of the Ratio of Earnings to Fixed
Charges.
12.2 BancBoston Mortgage Corporation -- Computation of the Ratio of Earnings to
Fixed Charges.
12.3 Barnett Mortgage Company -- Computation of the Ratio of the Ratio of Earnings
to Fixed Charges.
21.1 List of subsidiaries of HomeSide Lending, Inc.
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of KPMG Peat Marwick LLP
</TABLE>
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<PAGE> 234
<TABLE>
<S> <C>
23.4 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included
in Exhibit 5.1)
24.1 Powers of Attorney (contained on the signature page to this Registration
Statement).
25.1* Form of T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of The
Bank of New York.
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
* This Exhibit is filed with this Amendment No. 1 to Registration Statement.
** This Exhibit to be filed with a subsequent amendment to this Registration
Statement.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts and Reserves For the three
years ended December 31, 1995 For Barnett Mortgage Company (at page S-1).
Schedule II -- Valuation and Qualifying Accounts and Reserves For the year
ended December 31, 1994 For BancPLUS Financial Corporation and Subsidiary (at
page S-2).
Schedules other than those listed above have been omitted since the
information is not applicable, not required or is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 14 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes (1) that for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (2) that
for the purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
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<PAGE> 235
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE> 236
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
JACKSONVILLE, STATE OF FLORIDA, ON THE 14TH DAY OF MARCH, 1997.
HOMESIDE LENDING, INC.
By: /s/ JOE K. PICKETT
----------------------------------
JOE K. PICKETT
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ------------------
<C> <S> <C>
/s/ JOE K. PICKETT Chairman of the Board, Chief March 14, 1997
- ---------------------------------------- Executive Officer and Director
JOE K. PICKETT (Principal Executive Officer)
/s/ HUGH R. HARRIS President, Chief Operating Officer March 14, 1997
- ---------------------------------------- and Director
HUGH R. HARRIS
/s/ KEVIN D. RACE Executive Vice President and Chief March 14, 1997
- ---------------------------------------- Financial Officer (Principal
KEVIN D. RACE Financial and Accounting Officer)
/s/ ROBERT J. JACOBS Executive Vice President, March 14, 1997
- ---------------------------------------- Secretary, General Counsel and
ROBERT J. JACOBS Director
</TABLE>
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<PAGE> 237
BARNETT MORTGAGE COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------
BALANCE AT ACQUIRED CHARGED TO CHARGES TO BALANCE AT
BEGINNING FROM COSTS AND OTHER END
DESCRIPTION OF PERIOD BANCPLUS EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------- ---------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Reserve for losses $ -- $11,300 $ $ -- $ -- $ 11,300
YEAR ENDED DECEMBER 31, 1994
Reserve for losses -- -- -- -- --
YEAR ENDED DECEMBER 31, 1993
Reserve for losses $ -- $ -- $ -- $ -- $ --
</TABLE>
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<PAGE> 238
BANCPLUS FINANCIAL CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE TWO YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Reserve for losses $ 13,300 $-- $-- $ (1,900)(a) $ 11,400
Year ended December 31, 1993
Reserve for losses 14,700 -- -- (1,400)(a) 13,300
</TABLE>
- ---------------
(a) Represents losses incurred on dispositions of foreclosure claims and VA
buydowns.
S-2
<PAGE> 239
EXHIBIT INDEX
Unless otherwise indicated, all Exhibits have been previously filed or are
incorporated by reference to the Parent's Registration Statement on Form S-4,
No. 333-06737.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
1.1* Form of Distribution Agreement.......................................
3.1* Certificate of Incorporation of HomeSide Lending, Inc................
3.2* By-Laws of HomeSide Lending, Inc.....................................
4.1* Form of Indenture....................................................
4.2* Form of Fixed Rate Medium-Term Note..................................
4.3* Form of Floating Rate Medium-Term Note...............................
5.1* Form of opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation regarding legality of the securities being registered....
8.1* Form of opinion of Hutchins, Wheeler & Dittmar, a Professional
Corporation, regarding certain tax matters...........................
10.1 Stock Purchase Agreement dated December 11, 1995 between HomeAmerica
Capital, Inc. (currently known as HomeSide, Inc.) and The First
National Bank of Boston (the "BBMC Purchase Agreement")..............
10.2 Amendment No. 1, dated as of March 15, 1996, to the BBMC Purchase
Agreement............................................................
10.3 Marketing Agreement dated as of March 15, 1996 between HomeSide, Inc.
and The First National Bank of Boston................................
10.4 Repurchase of Mortgage Loan Servicing Rights Letter Agreement between
The First National Bank of Boston and BancBoston Mortgage Corporation
(currently known as HomeSide Lending, Inc.)..........................
10.5 Operating Agreement effective as of March 15, 1996 between The First
National Bank of Boston and BancBoston Mortgage Corporation
(currently known as HomeSide Lending, Inc.)..........................
10.6 Brokered Loan Purchase and Sale Agreement dated as of March 15, 1996
between BancBoston Mortgage Corporation (currently known as HomeSide
Lending, Inc.) and each of The First National Bank of Boston, Bank of
Boston Connecticut, Rhode Island Hospital Trust National Bank and
Bank of Boston Florida, N.A..........................................
10.7 Master Take-Out Commitment dated as of March 15, 1996 between
BancBoston Mortgage Corporation (currently known as HomeSide Lending,
Inc.) and each of The First National Bank of Boston, Bank of Boston
Connecticut, Rhode Island Hospital Trust National Bank and Bank of
Boston Florida, N.A..................................................
10.8 Neighborhood Assistance Corporation of America Mortgage Loan Take-Out
Commitment dated as of March 15, 1996 between BancBoston Mortgage
Corporation (currently known as HomeSide Lending, Inc.) and The First
National Bank of Boston..............................................
10.9+ PMSR Flow Agreement dated as of March 15, 1996 between BancBoston
Mortgage Corporation (currently known as HomeSide Lending, Inc.) and
each of The First National Bank of Boston, Bank of Boston
Connecticut, Rhode Island Hospital Trust National Bank and Bank of
Boston Florida, N.A..................................................
10.10+ Mortgage Loan Servicing Agreement dated as of March 15, 1996 between
BancBoston Mortgage Corporation (currently known as HomeSide Lending,
Inc.) and each of The First National Bank of Boston, Bank of Boston
Connecticut, Rhode Island Hospital Trust National Bank and Bank of
Boston Florida, N.A..................................................
</TABLE>
<PAGE> 240
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
10.11 Stock Purchase Agreement dated as of March 4, 1996 between
GrantAmerica, Inc. (currently known as HomeSide, Inc.) and Barnett
Banks, Inc. (the "BMC Purchase Agreement")...........................
10.12 Amendment No. 1, dated as of May 31, 1996, to the BMC Purchase
Agreement............................................................
10.13 Tax Indemnity Letter Agreement dated as of March 4, 1996 between
Barnett Mortgage Company (currently known as HomeSide Holdings, Inc.)
and Barnett Banks, Inc...............................................
10.14 Amended and Restated Shareholder Agreement dated as of May 31, 1996
among HomeSide, Inc. and the shareholders thereof....................
10.15 Amended and Restated Registration Rights Agreement dated as of May
31, 1996 between HomeSide, Inc. and certain shareholders thereof.....
10.16 Marketing Agreement dated as of May 31, 1996 between HomeSide, Inc.
and Barnett Banks, Inc...............................................
10.17 Transitional Services Agreement dated as of May 31, 1996 between
Barnett Banks, Inc., Barnett Mortgage Company (currently known as
HomeSide Holdings, Inc.) and HomeSide, Inc...........................
10.18 Operating Agreement dated as of May 31, 1996 between HomeSide
Lending, Inc. and Barnett Banks, Inc.................................
10.19+ Mortgage Loan Servicing Agreement dated as of April, 1996 between
HomeSide Lending, Inc. and Barnett Banks, Inc........................
10.20+ PMSR Flow Agreement dated as of May 31, 1996 between HomeSide
Lending, Inc. and Barnett Banks, Inc.................................
10.21 Correspondent Agreement dated May 16, 1996 between HomeSide Lending,
Inc. and Barnett Banks, Inc..........................................
10.22 Delegated Underwriting Agreement dated as of May 15, 1996 between
HomeSide Lending, Inc. and HomeSide Holdings, Inc....................
10.23* Amended and Restated Credit Agreement dated as of January 31, 1997
among HomeSide Lending, Inc., Honolulu Mortgage Company, Inc., the
Lenders parties thereto and The Chase Manhattan Bank, as
Administrative Agent (the "Credit Agreement")........................
10.24* Amended and Restated Holdings Pledge Agreement dated as of January
31, 1997 between HomeSide, Inc. and The Chase Manhattan Bank, as
Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
10.25* Amended and Restated HomeSide Pledge Agreement dated as of January
31, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank,
as Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
10.26* Amended and Restated BMC Pledge Agreement dated as of January 31,
1997 between HomeSide Holdings, Inc. and The Chase Manhattan Bank, as
Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
10.27 Registration Rights Agreement dated as of May 14, 1996 among
HomeSide, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Smith Barney Inc. and Friedman, Billings,
Ramsey & Co., Inc....................................................
10.28* Amended and Restated Holdings Guaranty dated as of January 31, 1997
by HomeSide, Inc. in favor of The Chase Manhattan Bank, as
Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
10.29* Amended and Restated HomeSide Guaranty dated as of January 31, 1997
by HomeSide Lending, Inc. in favor of The Chase Manhattan Bank, as
Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
</TABLE>
<PAGE> 241
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
10.30* Amended and Restated Subsidiaries Guaranty dated as of January 31,
1997 by each of SWD Properties, Inc., Stockton Plaza, Inc., HomeSide
Mortgage Securities, Inc. and Honolulu Mortgage Company, Inc. in
favor of The Chase Manhattan Bank, as Administrative Agent for the
Lenders parties to the Credit Agreement..............................
10.31* Amended and Restated BMC Guaranty dated as of January 31, 1997 by
HomeSide Holdings, Inc. in favor of The Chase Manhattan Bank, as
Administrative Agent for the Lenders parties to the Credit
Agreement............................................................
10.32* Amended and Restated Security and Collateral Agency Agreement dated
as of January 31, 1997 between HomeSide Lending, Inc. and The Chase
Manhattan Bank, as Administrative Agent for the Lenders parties to
the Credit Agreement.................................................
10.33* Amended and Restated Security and Collateral Agency Agreement dated
as of January 31, 1997 between Honolulu Mortgage Company, Inc. and
The Chase Manhattan Bank, as Administrative Agent for the Lenders
parties to the Credit Agreement......................................
10.34* Amended and Restated Security and Collateral Agency Agreement dated
as of January 31, 1997 between HomeSide Holdings, Inc. and The Chase
Manhattan Bank, as Administrative Agent for the Lenders parties to
the Credit Agreement.................................................
10.35 Intercreditor Agreement dated as of May 31, 1996 between HomeSide,
Inc., HomeSide Holdings, The Bank of New York, as Trustee, and
Chemical Bank, as Administrative Agent under the Credit Agreement....
10.36 HomeSide, Inc. Time Accelerated Restricted Stock Option Plan.........
10.37 HomeSide, Inc. Non-Qualified Stock Option Plan.......................
10.38 Class B Non-Voting Common Stock Issuance Agreement dated as of March
14, 1996 between HomeSide, Inc. and Smith Barney Inc.................
10.39 Transitional Services Agreement dated as of March 15, 1996 between
The First National Bank of Boston and BancBoston Mortgage Corporation
(currently known as HomeSide Lending, Inc.)..........................
10.40 Transitional Services Agreement dated as of March 15, 1996 between
The First National Bank of Boston and BancBoston Mortgage Corporation
(currently known as HomeSide Lending, Inc.)..........................
10.41 Management Agreement dated as of March 15, 1996 between BancBoston
Mortgage Corporation (currently known as HomeSide Lending, Inc.) and
The First National Bank of Boston....................................
10.42 Management Agreement dated as of March 15, 1996 between BancBoston
Mortgage Corporation (currently known as HomeSide Lending, Inc.) and
Thomas H. Lee Company................................................
10.43 Management Agreement dated as of March 15, 1996 between BancBoston
Mortgage Corporation (currently known as HomeSide Lending, Inc.) and
Madison Dearborn Partners, Inc.......................................
10.44 Management Stockholder Agreement dated as of May 15, 1996 between
HomeSide, Inc., The First National Bank of Boston, Thomas H. Lee
Equity Fund III, L.P. and certain affiliates thereof, Madison
Dearborn Capital Partners, L.P. and certain employees of HomeSide,
Inc. and its subsidiaries............................................
10.45 Management Agreement dated as of May 31, 1996 between HomeSide
Lending, Inc. and Barnett Banks, Inc.................................
10.46 Form of HomeSide Severance Agreement.................................
10.47 Loan and Security Agreement dated January 15, 1997 between HomeSide
Lending, Inc. and The Chase Manhattan Bank...........................
</TABLE>
<PAGE> 242
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
10.48* First Amendment dated February 28, 1997 to Loan and Security
Agreement dated January 15, 1997 between HomeSide Lending, Inc. and
The Chase Manhattan Bank.............................................
10.49** Second Amendment dated March 14, 1997 to Loan and Security Agreement
dated January 15, 1997 between HomeSide Lending, Inc. and The Chase
Manhattan Bank.
12.1 HomeSide Lending, Inc. -- Computation of the Ratio of Earnings to
Fixed Charges........................................................
12.2 BancBoston Mortgage Corporation -- Computation of the Ratio of
Earnings to Fixed Charges............................................
12.3 Barnett Mortgage Company -- Computation of the Ratio of the Ratio of
Earnings to Fixed Charges............................................
21.1 List of subsidiaries of HomeSide Lending, Inc........................
23.1* Consent of Arthur Andersen LLP.......................................
23.2* Consent of Coopers & Lybrand L.L.P...................................
23.3* Consent of KPMG Peat Marwick LLP.....................................
23.4 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in Exhibit 5.1)............................................
24.1 Powers of Attorney (contained on the signature page to this
Registration Statement)..............................................
25.1* Form of T-1 Statement of Eligibility Under Trust Indenture Act of
1939 of The Bank of New York.........................................
27.1 Financial Data Schedule..............................................
<FN>
- ---------------
+ Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
* This Exhibit is filed with this Amendment No. 1 to Registration Statement.
** This Exhibit to be filed with a subsequent amendment to this Registration
Statement.
</TABLE>
<PAGE> 1
==============================================================================
HOMESIDE LENDING, INC.
(a Florida corporation)
$1,000,000,000
Medium-Term Notes due Nine Months or More from Date of Issue
DISTRIBUTION AGREEMENT
----------------------
==============================================================================
Dated: *, 1997
<PAGE> 2
TABLE OF CONTENTS
DISTRIBUTION AGREEMENT...................................................... 1
SECTION 1. APPOINTMENT AS AGENT....................................... 3
(a) APPOINTMENT................................................ 3
(b) SALE Of NOTES.............................................. 3
(c) PURCHASE AS PRINCIPAL...................................... 3
(d) SOLICITATIONS AS AGENT..................................... 3
(e) RELIANCE................................................... 3
SECTION 2. REPRESENTATIONS AND WARRANTIES............................. 4
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY.............. 4
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS............. 4
(ii) INDEPENDENT ACCOUNTANTS.............................. 5
(iii) FINANCIAL STATEMENTS................................ 5
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS............... 5
(v) GOOD STANDING OF THE COMPANY.......................... 6
(vi) GOOD STANDING OF SUBSIDIARIES........................ 6
(vii) CAPITALIZATION...................................... 6
(viii) AUTHORIZATION ETC. OF THIS AGREEMENT, THE INDENTURE
AND THE NOTES..................................... 6
(ix) DESCRIPTIONS OF THE INDENTURE AND THE NOTES.......... 7
(x) ABSENCE OF DEFAULTS AND CONFLICTS..................... 7
(xi) ABSENCE OF LABOR DISPUTE............................. 8
(xii) ABSENCE OF PROCEEDINGS.............................. 8
(xiii) ACCURACY OF EXHIBITS............................... 8
(xiv) NO STABILIZATION OR MANIPULATION.................... 8
(xv) ABSENCE OF FURTHER REQUIREMENTS...................... 9
(xvi) POSSESSION OF LICENSES AND PERMITS.................. 9
(xvii) TITLE TO PROPERTY................................... 9
(xviii) INVESTMENT COMPANY ACT............................ 10
(xix) ENVIRONMENTAL LAWS.................................. 10
(xx) COMMODITY EXCHANGE ACT............................... 10
(xxi) RATINGS............................................. 10
(xxii) REGISTRATION RIGHTS................................ 10
(xxiii) INTERNAL ACCOUNTING CONTROLS...................... 11
(xxiv) POSSESSION OF INTELLECTUAL PROPERTY................ 11
(b) ADDITIONAL CERTIFICATION................................... 11
SECTION 3. PURCHASE AS PRINCIPAL; SOLICITATIONS AS AGENT.............. 11
(a) PURCHASE AS PRINCIPAL...................................... 11
(b) SOLICITATIONS AS AGENT..................................... 12
(c) ADMINISTRATIVE PROCEDURES.................................. 13
SECTION 4. COVENANTS OF THE COMPANY................................... 13
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS................................................... 13
(b) FILING OF AMENDMENTS....................................... 14
(c) DELIVERY OF REGISTRATION STATEMENTS........................ 14
i
<PAGE> 3
(d) DELIVERY OF PROSPECTUSES................................... 14
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS.................. 14
(f) BLUE SKY QUALIFICATIONS.................................... 15
(g) PREPARATION OF PRICING SUPPLEMENTS......................... 15
(h) REVISIONS OF PROSPECTUS - MATERIAL CHANGES................. 15
(i) PROSPECTUS REVISIONS - PERIODIC FINANCIAL INFORMATION..... 16
(j) PROSPECTUS REVISION - AUDITED FINANCIAL INFORMATION........ 16
(k) RULE 158................................................... 16
(l) 1940 ACT................................................... 16
(m) USE OF PROCEEDS............................................ 16
(n) RESTRICTION ON OFFERS AND SALES OF NOTES................... 16
(o) SUSPENSION OF CERTAIN OBLIGATIONS.......................... 17
(p) REPORTING REQUIREMENTS..................................... 17
(q) COMPLIANCE WITH RULE 463................................... 17
SECTION 5. CONDITIONS OF AGENTS' OBLIGATIONS.......................... 17
(a) EFFECTIVENESS OF REGISTRATION STATEMENT.................... 17
(b) OPINION OF COUNSEL FOR COMPANY............................. 17
(c) OPINION OF GENERAL COUNSEL FOR COMPANY..................... 18
(d) OPINION OF COUNSEL FOR AGENTS.............................. 18
(e) OFFICERS' CERTIFICATE...................................... 18
(f) ACCOUNTANTS' COMFORT LETTERS............................... 19
(g) ADDITIONAL DOCUMENTS....................................... 19
(h) TERMINATION OF AGREEMENT................................... 19
SECTION 6. DELIVERY OF AND PAYMENT FOR NOTES SOLD THROUGH AN AGENT AS
AGENT........................................................... 19
SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY........................ 20
(a) REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES............ 20
(b) SUBSEQUENT DELIVERY OF CERTIFICATES........................ 20
(c) SUBSEQUENT DELIVERY OF LEGAL OPINIONS ..................... 20
(d) SUBSEQUENT DELIVERY OF COMFORT LETTERS..................... 21
SECTION 8. INDEMNIFICATION............................................ 21
(a) INDEMNIFICATION OF THE AGENTS.............................. 21
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS......... 22
(c) ACTIONS AGAINST PARTIES; NOTIFICATION...................... 23
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE......... 23
SECTION 9. CONTRIBUTION............................................... 23
SECTION 10. PAYMENT OF EXPENSES........................................ 25
(a) EXPENSES................................................... 25
(b) TERMINATION OF AGREEMENT................................... 26
ii
<PAGE> 4
SECTION 11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY................................................... 26
SECTION 12. TERMINATION................................................ 26
(a) TERMINATION OF THIS AGREEMENT.............................. 26
(b) TERMINATION OF AGREEMENT TO PURCHASE NOTES AS PRINCIPAL.... 26
(c) GENERAL.................................................... 27
SECTION 13. NOTICES.................................................... 27
SECTION 14. PARTIES.................................................... 28
SECTION 15. GOVERNING LAW; FORUM....................................... 29
SECTION 16. EFFECT OF HEADINGS......................................... 29
SECTION 17. COUNTERPARTS............................................... 29
SCHEDULES
Schedule A - Compensation Schedule....................... Sch A-1
EXHIBITS
Exhibit A - Pricing Terms................................ Exh A-1
Exhibit B-1 - Form of Opinion of Company's Counsel....... Exh B-1-1
Exhibit B-2 - Form of Opinion of Company's
General Counsel....................................... Exh B-2-1
iii
<PAGE> 5
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
DISTRIBUTION AGREEMENT
*, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
CHASE SECURITIES INC.
NATIONSBANK CAPITAL MARKETS, INC.
SMITH BARNEY INC.
as Agents
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
250 Vesey Street
New York, New York 10281-1209
Ladies and Gentlemen:
HomeSide Lending, Inc., a Florida corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Chase Securities Inc. ("Chase"), NationsBank
Capital Markets, Inc. ("NationsBank") and Smith Barney Inc. ("Smith Barney")
(each an "Agent," and collectively, the "Agents") with respect to the issue and
sale by the Company of its Medium-Term Notes Due Nine Months or More From Date
of Issue (the "Notes"). The Notes are to be issued pursuant to an Indenture,
dated as of *, as amended or modified from time to time (the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Trustee"). As of
the date hereof, the Company has authorized the issuance and sale of up to
U.S.$1,000,000,000 aggregate initial offering price of Notes (or its equivalent,
based upon the exchange rate on the applicable trade date in such foreign or
composite currencies as the Company shall designate at the time of issuance) to
or through the Agents pursuant to the terms of this Agreement. It is understood,
however, that the Company may from time to time authorize the issuance of
additional Notes and that such additional Notes may be sold to or through the
Agents pursuant to the terms of this Agreement, all as though the issuance of
such Notes were authorized as of the date hereof.
This Agreement provides both for the sale of Notes by the Company to
one or more Agents as principal for resale to investors and other purchasers and
for the sale of Notes by the Company directly to investors (as may from time to
time be agreed to by the Company and the
1
<PAGE> 6
applicable Agent), in which case the applicable Agent will act as an agent of
the Company in soliciting offers for the purchase of Notes.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-21193) and
pre-effective amendment[s] no[s]. * thereto] for the registration of debt
securities, including the Notes, under the Securities Act of 1933, as amended
(the "1933 Act"), and the offering thereof from time to time in accordance with
Rule 415 of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations"), and the Company has filed such post-effective
amendments thereto as may be required prior to any acceptance by the Company of
an offer for the purchase of Notes. Such registration statement (as so amended,
if applicable) has been declared effective by the Commission and the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended (the
"1939 Act"). To the extent required or permitted under the 1933 Act and the 1933
Act Regulations, promptly after execution and delivery of this Agreement and
from time to time thereafter, the Company will either (i) prepare and file a
prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") and/or paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule
434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Such registration statement, including
the exhibits thereto and schedules thereto at the time it became effective and
including the Rule 430A Information and the Rule 434 Information, as applicable,
and as amended by each post-effective amendment thereto, if any, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus and all applicable amendments or supplements thereto (including the
final prospectus supplement, pricing supplement and Rule 430A Information or
Rule 434 Information, relating to the offering of Notes, if any), in the form
first furnished to the applicable Agent(s), are collectively referred to herein
as the "Prospectus." A "preliminary prospectus" shall be deemed to refer to any
prospectus used before the registration statement became effective and any
prospectus furnished by the Company after the registration statement became
effective and before any acceptance by the Company of an offer for the purchase
of Notes which omitted the relevant Rule 430A Information or Rule 434
Information. For purposes of this Agreement, all references to the Registration
Statement, Prospectus or preliminary prospectus or to any amendment or
supplement thereto shall be deemed to include any copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
2
<PAGE> 7
SECTION 1. Appointment as Agent.
--------------------
(a) APPOINTMENT. (i) Subject to the terms and conditions stated herein
and subject to the reservation by the Company of the right to sell Notes
directly on its own behalf, the Company hereby agrees that Notes will be sold
exclusively to or through the Agents. The Company agrees that it will not
appoint any other agents to act on its behalf, or to assist it, in the placement
of the Notes.
(ii) Notwithstanding anything to the contrary contained herein, the
Company may authorize any other person, partnership or corporation (an
"Additional Agent") to act as its agent to solicit offers for the purchase of
all or part of the Notes and/or accept offers to purchase Notes from any such
Additional Agent, provided, however, that any such Additional Agent shall have
entered into an agreement with the Company upon the same terms and conditions as
set forth in this Agreement.
(b) SALE OF NOTES. The Company shall not sell or approve the
solicitation of offers for the purchase of Notes in excess of the amount which
shall be authorized by the Company from time to time or in excess of the
aggregate initial offering price of Notes registered pursuant to the
Registration Statement. The Agents shall have no responsibility for maintaining
records with respect to the aggregate initial offering price of Notes sold, or
of otherwise monitoring the availability of Notes for sale, under the
Registration Statement.
(c) PURCHASES AS PRINCIPAL. The Agents shall not have any obligation to
purchase Notes from the Company as principal. However, absent an agreement
between an Agent and the Company that such Agent shall be acting solely as an
agent for the Company, such Agent shall be deemed to be acting as principal in
connection with any offering of Notes by the Company through such Agent.
Accordingly, the Agents, individually or in a syndicate, may agree from time to
time to purchase Notes from the Company as principal for resale to investors and
other purchasers determined by such Agents. Any purchase of Notes from the
Company by an Agent as principal shall be made in accordance with Section 3(a)
hereof.
(d) SOLICITATIONS AS AGENT. If agreed upon between an Agent and the
Company, such Agent, acting solely as an agent for the Company and not as
principal, will solicit offers for the purchase of Notes. Such Agent will
communicate to the Company, orally, each offer for the purchase of Notes
solicited by it on an agency basis other than those offers rejected by such
Agent. Such Agent shall have the right, in its discretion reasonably exercised,
to reject any offer for the purchase of Notes, in whole or in part, and any such
rejection shall not be deemed a breach of its agreement contained herein. The
Company may accept or reject any offer for the purchase of Notes, in whole or in
part. Such Agent shall make reasonable efforts to assist the Company in
obtaining performance by each purchaser whose offer for the purchase of Notes
has been solicited by it on an agency basis and accepted by the Company. Such
Agent shall not have any liability to the Company in the event that any such
purchase is not consummated for any reason. If the Company shall default on its
obligation to deliver Notes to a purchaser whose offer has been solicited by
such Agent on an agency basis and accepted by the Company, the Company shall (i)
hold such Agent harmless against any loss, claim or damage arising from or
3
<PAGE> 8
as a result of such default by the Company and (ii) pay to such Agent any
commission to which it would otherwise be entitled absent such default.
(e) RELIANCE. The Company and the Agents agree that any Notes purchased
from the Company by one or more Agents as principal shall be purchased, and any
Notes the placement of which an Agent arranges as an agent of the Company shall
be placed by such Agent, in reliance on the representations, warranties,
covenants and agreements of the Company contained herein and on the terms and
conditions and in the manner provided herein.
SECTION 2. Representations and Warranties.
------------------------------
(a) REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Agent as of the date hereof, as of the date of
each acceptance by the Company of an offer for the purchase of Notes (whether to
such Agent as principal or through such Agent as agent), as of the date of each
delivery of Notes (whether to such Agent as principal or through such Agent as
agent) (the date of each such delivery to such Agent as principal is referred to
herein as a "Settlement Date"), and as of any time that the Registration
Statement or the Prospectus shall be amended or supplemented (each of the times
referenced above is referred to herein as a "Representation Date"), as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with. The
Indenture has been duly qualified under the 1939 Act.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at each Representation Date, the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act
and the rules and regulations of the Commission under the 1939 Act (the
"1939 Act Regulations"), and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at each Representation Date, included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at the
time it became effective. The representations and warranties in this
subsection shall
4
<PAGE> 9
not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Agent(s) expressly for use in
the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Agents for use
in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants, Arthur Andersen LLP,
Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, each of whom certified
certain financial statements and supporting schedules thereto included in
the Registration Statement and the Prospectus, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly (a) the financial position of (1) the
Company and its consolidated subsidiaries, (2) HomeSide Holdings, Inc.
(formerly known as Barnett Mortgage Company) and its consolidated
subsidiaries and (3) BancPLUS Financial Corporation and its consolidated
subsidiaries, in each case at the dates indicated and (b) the results of
operations, stockholders' equity and cash flows of (1) the Company and its
consolidated subsidiaries, (2) HomeSide Holdings, Inc. and its consolidated
subsidiaries and (3) BancPLUS Financial Corporation and its consolidated
subsidiaries, in each case for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected financial data and the summary financial
information included in the Registration Statement and the Prospectus
present fairly the information shown therein and have been compiled on a
basis consistent with that of the audited financial statements included in
the Registration Statement and the Prospectus. The pro forma financial
statements and the related notes thereto and other pro forma financial
information included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein or contemplated thereby,
(A) there has been no material
5
<PAGE> 10
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Florida and has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus, to enter into and perform its obligations under this Agreement
and to consummate the transactions contemplated in the Prospectus; the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify or be in good
standing would not result in a Material Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Each subsidiary (either direct or
indirect) of the Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Prospectus and
is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; except as stated in the
Registration Statement and the Prospectus, all of the issued and
outstanding shares of capital stock of each subsidiary of the Company has
been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity; and none of the outstanding shares of capital stock of any such
subsidiary was issued in violation of preemptive or other similar rights of
any securityholder of such subsidiary. The only subsidiaries of the Company
are (a) the subsidiaries listed on Exhibit 21 to the Registration Statement
and (b) certain other subsidiaries which, considered in the aggregate as a
single subsidiary, do not constitute a "significant subsidiary" as defined
in Rule 1-02 of Regulation S-X.
(vii) CAPITALIZATION. If applicable, the authorized, issued and
outstanding capital stock of the Company at the date hereof is as set forth
in the Prospectus under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus). The
shares of issued and outstanding capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
none
6
<PAGE> 11
of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any securityholder
of the Company.
(viii) AUTHORIZATION, ETC. OF THIS AGREEMENT, THE INDENTURE AND THE
NOTES. This Agreement has been duly authorized, executed and delivered by
the Company; the Indenture has been duly authorized, executed and delivered
by the Company and will be a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by (1) bank- ruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, (2) general equitable
principles (regardless of whether enforcement is considered in a proceeding
in equity or at law), (3) requirements that a claim with respect to any
debt securities issued under the Indenture that are payable in a foreign or
composite currency (or a foreign or composite currency judgment in respect
of such claim) be converted into U.S. dollars at a rate of exchange
prevailing on a date determined pursuant to applicable law or (4)
governmental authority to limit, delay or prohibit the making of payments
outside the United States; the Notes have been duly authorized by the
Company for offer, sale, issuance and delivery pursuant to this Agreement
and, when issued, authenticated and delivered in the manner provided for in
the Indenture and delivered against payment of the consideration therefor,
will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally, (2) general equitable principles
(regardless of whether enforcement is considered in a proceeding in equity
or at law), (3) requirements that a claim with respect to any Notes payable
in a foreign or composite currency (or a foreign or composite currency
judgment in respect of such claim) be converted into U.S. dollars at a rate
or exchange prevailing on a date determined pursuant to applicable law or
(4) governmental authority to limit, delay or prohibit the making of
payments outside the United States; the Notes will be substantially in a
form previously certified to the Agents and contemplated by the Indenture;
and each holder of Notes will be entitled to the benefits of the Indenture.
(ix) DESCRIPTIONS OF THE INDENTURE AND THE NOTES. The Indenture and
the Notes conform and will conform in all material respects to the
statements relating thereto contained in the Prospectus and are
substantially in the form filed as an exhibit to the Registration
Statement.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of
its subsidiaries is in violation of the provisions of its charter or
by-laws or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of them may be bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments"), except for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement, the Indenture,
7
<PAGE> 12
the Notes and any other agreement or instrument entered into or issued or
to be entered into or issued by the Company in connection with the
transactions contemplated by the Prospectus, the consummation of the
transactions contemplated in the Prospectus (including the issuance and
sale of the Notes and the use of proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds") and the compliance by the
Company with its obligations hereunder and under the Indenture, the Notes
and such other agreements or instruments have been duly authorized by all
necessary corporate action and do not and will not, whether with or without
the giving of notice or the passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets, properties or
operations. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any of its subsidiaries.
(xi) ABSENCE OF LABOR DISPUTES. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, is imminent, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or to the knowledge of
the Company threatened, against or affecting the Company or any of its
subsidiaries which is required to be disclosed in the Registration
Statement and the Prospectus (other than as stated therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the assets,
properties or operations thereof, the performance by the Company of its
obligations under this Agreement, the Indenture and the Notes or the
consummation of the transactions contemplated in the Prospectus; and the
aggregate of all pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
respective assets, properties or operations is the subject which are not
described in the Registration Statement and the Prospectus, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
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(xiii) ACCURACY OF EXHIBITS. There are no contracts or documents which
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) NO STABILIZATION OR MANIPULATION. Neither the Company nor any of
its subsidiaries has taken or will take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Notes.
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
or quasi-governmental agency (including the Federal Home Loan Mortgage
Corporation ("FHLMC"), Fannie Mae (formerly known as the Federal National
Mortgage Association), the Government National Mortgage Association
("GNMA"), the Federal Housing Administration ("FHA") and the Veterans
Administration ("VA")) is necessary or required for the performance by the
Company of its obligations hereunder, in connection with the offering,
issuance or sale of the Notes hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or the securities or "blue sky" laws of the various states.
(xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory or
quasi-governmental agencies or bodies (including FHLMC, Fannie Mae, GNMA,
FHA and VA) necessary to conduct the business now operated by them, except
where the failure so to possess such Governmental Licenses would not,
singly or in the aggregate, have a Material Adverse Effect; the Company and
its subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xvii) TITLE TO PROPERTY. The Company and its subsidiaries have good
and marketable title to all properties and assets described in the
Prospectus as owned by the Company and its subsidiaries, free and clear of
all mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind, except (A) as otherwise stated in the
Registration Statement and the Prospectus or (B) those which do not, singly
or in the aggregate, materially affect the value of such property or asset
and do not interfere with the use made and proposed to be made of such
property or asset by the Company or any of its subsidiaries; and all of the
leases and subleases material to the business of
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the Company and its subsidiaries considered as one enterprise, and under
which the Company or any of its subsidiaries holds properties or assets
described in the Prospectus, are in full force and effect, and neither the
Company nor any of its subsidiaries has any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of such leases or subleases,
or affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease.
(xviii) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Notes as herein contemplated and the application
of the net proceeds therefrom as described in the Prospectus will not be,
an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940,
as amended (the "1940 Act").
(xix) ENVIRONMENTAL LAWS. Except as otherwise stated in the
Registration Statement and the Prospectus and except as would not, singly
or in the aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xx) COMMODITY EXCHANGE ACT. The Notes, upon issuance, will be
excluded or exempted under, or beyond the purview of, the Commodity
Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and
regulations of the Commodity Futures Trading Commission under the Commodity
Exchange Act (the "Commodity Exchange Act Regulations").
(xxi) ratings. The Medium-Term Note Program under which the Notes are
issued (the "Program"), as well as the Notes, are rated * by Moody's
Investors Service,
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Inc. and * by Standard & Poor's Ratings Service, or such other rating as to
which the Company shall have most recently notified the Agents pursuant to
Section 4(a) hereof.
(xxii) REGISTRATION RIGHTS. There are no persons with registration
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act.
(xxiii) INTERNAL ACCOUNTING CONTROLS. The Company and its subsidiaries
each maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions are executed in
accordance with management's general and specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general and specific authorization, and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company and its subsidiaries have not made, and, to the
knowledge of the Company, no employee or agent of the Company or any of its
subsidiaries has made, any payment of the Company's or any of its
subsidiaries' funds or received or retained any funds in violation of any
applicable law, regulation or rule or that would be required to be
disclosed in the Prospectus.
(xxiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, software, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(b) ADDITIONAL CERTIFICATION. Any certificate signed by any officer of the
Company or any of its subsidiaries and delivered to one or more Agents or to
counsel for the Agents in connection with an offering of Notes to one or more
Agents as principal or through an Agent as agent shall be deemed a
representation and warranty by the Company to such Agent or Agents as to the
matters covered thereby on the date of such certificate and, unless subsequently
amended or supplemented, at each Representation Date subsequent thereto.
SECTION 3. Purchases as Principal; Solicitations as Agent.
----------------------------------------------
(a) PURCHASES AS PRINCIPAL. Purchases of Notes from the Company by the
Agents, individually or in a syndicate, as principal shall be made in accordance
with terms agreed upon
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between such Agent or Agents and the Company (which terms, unless otherwise
agreed, shall, to the extent applicable, include those terms specified in
Exhibit A hereto and shall be agreed upon orally, with written confirmation
prepared by such Agent or Agents and mailed to the Company). An Agent's
commitment to purchase Notes as principal shall be deemed to have been made on
the basis of the representations and warranties of the Company herein contained
and shall be subject to the terms and conditions herein set forth. Unless the
context otherwise requires, references herein to "this Agreement" shall include
the applicable agreement of one or more Agents to purchase Notes from the
Company as principal. Each purchase of Notes, unless otherwise agreed, shall be
at a discount from the principal amount of each such Note equivalent to the
applicable commission set forth in Schedule A hereto. The Agents may engage the
services of any broker or dealer in connection with the resale of the Notes
purchased by them as principal and may allow all or any portion of the discount
received from the Company in connection with such purchases to such brokers or
dealers. At the time of each purchase of Notes from the Company by one or more
Agents as principal, such Agent or Agents shall specify the requirements for the
officers' certificate, opinion of counsel and comfort letter pursuant to
Sections 7(b), 7(c) and 7(d) hereof.
If the Company and two or more Agents enter into an agreement pursuant to
which such Agents agree to purchase Notes from the Company as principal and one
or more of such Agents shall fail at the relevant Settlement Date to purchase
the Notes which it or they are obligated to purchase (the "Defaulted Notes"),
then the nondefaulting Agents shall have the right, within 24 hours thereafter,
to make arrangements for one of them or one or more other Agents or underwriters
to purchase all, but not less than all, of the Defaulted Notes in such amounts
as may be agreed upon and upon the terms herein set forth; provided, however,
that if such arrangements shall not have been completed within such 24-hour
period, then:
(A) if the aggregate principal amount of Defaulted Notes does not
exceed 10% of the aggregate principal amount of Notes to be so purchased by
all of such Agents on such Settlement Date, the nondefaulting Agents shall
be obligated, severally and not jointly, to purchase the full amount
thereof in the proportions that their respective initial underwriting
obligations bear to the underwriting obligations of all nondefaulting
Agents; or
(B) if the aggregate principal amount of Defaulted Notes exceeds 10%
of the aggregate principal amount of Notes to be so purchased by all of
such Agents on such Settlement Date, such agreement shall terminate without
liability on the part of any nondefaulting Agent.
No action taken pursuant to this paragraph shall relieve any defaulting Agent
from liability in respect of its default. In the event of any such default which
does not result in a termination of such agreement, either the nondefaulting
Agents or the Company shall have the right to postpone the relevant Settlement
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or the Prospectus or in any other
documents or arrangements.
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(b) SOLICITATIONS AS AGENT. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, when agreed by the Company and an Agent, such Agent, as an agent of the
Company, will use its reasonable efforts to solicit offers for the purchase of
Notes upon the terms set forth in the Prospectus. The Agents are not authorized
to appoint sub-agents with respect to Notes sold through them as agent. All
Notes sold through an Agent as agent will be sold at 100% of their principal
amount unless otherwise agreed upon between the Company and such Agent.
The Company reserves the right, in its sole discretion, to suspend
solicitation of offers for the purchase of Notes through an Agent, as an agent
of the Company, commencing at any time for any period of time or permanently. As
soon as practicable after receipt of instructions from the Company, such Agent
will suspend solicitation of offers for the purchase of Notes from the Company
until such time as the Company has advised such Agent that such solicitation may
be resumed.
The Company agrees to pay each Agent a commission, in the form of a
discount, equal to the applicable percentage of the principal amount of each
Note sold by the Company as a result of a solicitation made by such Agent, as an
agent of the Company, as set forth in Schedule A hereto.
(c) ADMINISTRATIVE PROCEDURES. The purchase price, interest rate or
formula, maturity date and other terms of the Notes specified in Exhibit A
hereto (as applicable) shall be agreed upon between the Company and the
applicable Agent(s) and specified in a pricing supplement to the Prospectus
(each, a "Pricing Supplement") to be prepared by the Company in connection with
each sale of Notes. Except as otherwise specified in the applicable Pricing
Supplement, the Notes will be issued in denominations of U.S. $1,000 or any
larger amount that is an integral multiple of U.S. $1,000. Administrative
procedures with respect to the issuance and sale of the Notes (the "Procedures")
shall be agreed upon from time to time among the Company, the Agents and the
Trustee. The Agents and the Company agree to perform, and the Company agrees to
cause the Trustee to agree to perform, their respective duties and obligations
specifically provided to be performed by them in the Procedures.
SECTION 4. Covenants of the Company.
------------------------
The Company covenants and agrees with each Agent as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 4(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Agents immediately, and confirm
the notice in writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus or
for additional information, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Notes for offering
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or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes, or (v) any change in the rating assigned
by any nationally recognized statistical rating organization to the Program or
any debt securities (including the Notes) of the Company, or the public
announcement by any nationally recognized statistical rating organization that
it has under surveillance or review, with possible negative implications, its
rating of the Program or any such debt securities, or the withdrawal by any
nationally recognized statistical rating organization of its rating of the
Program or any such debt securities. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of Prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such Prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) FILING OF AMENDMENTS. The Company will give the Agents advance notice
of its intention to file or prepare any additional registration statement with
respect to the registration of additional Notes, any amendment to the
Registration Statement (including any filing under Rule 462(b)) or any amendment
or supplement to the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus (other than an amendment or
supplement thereto providing solely for the determination of the variable terms
of the Notes or relating solely to the offering of securities other than the
Notes), whether pursuant to the 1933 Act or otherwise, will furnish to the
Agents copies of any such document a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such document
to which the Agents or counsel for the Agents shall reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or will
deliver to each Agent and counsel for the Agents, without charge, signed and
conformed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed and conformed copies of all consents and
certificates of experts. The Registration Statement and each amendment thereto
furnished to the Agents will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company will deliver to each Agent,
without charge, as many copies of each preliminary prospectus as such Agent may
reasonably request, and the Company hereby consents to the use of such copies
for purposes permitted by the 1933 Act. The Company will furnish to each Agent,
without charge, during the period when the Prospectus is required to be
delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934
Act"), such number of copies of the Prospectus (as amended or supplemented) as
such Agent may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Agents will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply with
the 1933 Act and the 1933 Act Regulations so as to permit the completion of the
distribution of the
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Notes as contemplated in this Agreement and in the Prospectus. If at any time
when a Prospectus is required by the 1933 Act to be delivered in connection with
sales of the Notes any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Agents or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 4(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and the
Company will furnish to the Agents such number of copies of such amendment or
supplement as the Agents may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Agents, to qualify the Notes for offering and sale under
the applicable securities laws of such states and other jurisdictions (domestic
or foreign) as the Agents may designate and to maintain such qualifications in
effect for as long as may be required for the distribution of the Notes;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the Notes
have been so qualified, the Company will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification in
effect for as long as may be required for the distribution of the Notes.
(g) PREPARATION OF PRICING SUPPLEMENTS. The Company will prepare, with
respect to any Notes to be sold to or through one or more Agents pursuant to
this Agreement, a Pricing Supplement with respect to such Notes in a form
previously approved by the Agents. The Company will deliver such Pricing
Supplement no later than 11:00 a.m., New York City time, on the business day
following the date of the Company's acceptance of the offer for the purchase of
such Notes and will file such Pricing Supplement pursuant to Rule 424(b)(3)
under the 1933 Act not later than the close of business of the Commission on the
fifth business day after the date on which such Pricing Supplement is first
used.
(h) REVISIONS OF PROSPECTUS -- MATERIAL CHANGES. Except as otherwise
provided in subsection (o) of this Section 4, if at any time during the term of
this Agreement any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Agents or counsel for
the Company, to amend the Registration Statement in order that the Registration
Statement will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or to amend or supplement the Prospectus in
order that the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, or if it shall be necessary, in the
opinion of
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either such counsel, to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company shall give immediate notice, confirmed in
writing, to the Agents to cease the solicitation of offers for the purchase of
Notes in their capacity as agents and to cease sales of any Notes they may then
own as principal, and the Company will promptly prepare and file with the
Commission, subject to Section 4(b) hereof, such amendment or supplement as may
be necessary to correct such statement or omission or to make the Registration
Statement and Prospectus comply with such requirements, and the Company will
furnish to the Agents, without charge, such number of copies of such amendment
or supplement as the Agents may reasonably request. In addition, the Company
will comply with the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
rules and regulations of the Commission under the 1934 Act so as to permit the
completion of the distribution of each offering of Notes.
(i) PROSPECTUS REVISIONS -- PERIODIC FINANCIAL INFORMATION. Except as
otherwise provided in subsection (o) of this Section 4, on or prior to the date
on which there shall be released to the general public interim financial
statement information related to the Company with respect to each of the first
three quarters of any fiscal year or preliminary financial statement information
with respect to any fiscal year, the Company shall furnish such information to
the Agents, confirmed in writing, and shall cause the Prospectus to be amended
or supplemented to include financial information with respect thereto and
corresponding information for the comparable period of the preceding fiscal
year, as well as such other information and explanations as shall be necessary
for an understanding thereof or as shall be required by the 1933 Act or the 1933
Act Regulations.
(j) PROSPECTUS REVISIONS -- AUDITED FINANCIAL INFORMATION. Except as
otherwise provided in subsection (o) of this Section 4, on or prior to the date
on which there shall be released to the general public financial information
included in or derived from the audited consolidated financial statements of the
Company for the preceding fiscal year, the Company shall furnish such
information to the Agents, confirmed in writing, and shall cause the Prospectus
to be amended or supplemented to include such audited consolidated financial
statements and the report or reports, and consent or consents to such inclusion,
of the independent accountants with respect thereto, as well as such other
information and explanations as shall be necessary for an understanding of such
consolidated financial statements or as shall be required by the 1933 Act or the
1933 Act Regulations.
(k) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act and Rule 158 of the 1933 Act Regulations.
(l) 1940 ACT. The Company will not be or become an "investment company" or
an entity "controlled" by an "investment company" as such terms are defined in
the 1940 Act.
(m) USE OF PROCEEDS. The Company will use the net proceeds received by it
from the issuance and sale of the Notes in the manner specified in the
Prospectus under the caption "Use of Proceeds."
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(n) RESTRICTION ON OFFERS AND SALES OF NOTES. Unless otherwise agreed upon
between one or more Agents acting as principal and the Company, between the date
of the agreement by such Agent(s) to purchase the related Notes from the Company
and the Settlement Date with respect thereto, the Company will not, without the
prior written consent of such Agent(s), issue, sell, offer or contract to sell,
grant any option for the sale of, or otherwise dispose of, any debt securities
of the Company (other than the Notes that are to be sold pursuant to such
agreement or commercial paper in the ordinary course of business).
(o) SUSPENSION OF CERTAIN OBLIGATIONS. The Company shall not be required to
comply with the provisions of subsections (h), (i) or (j) of this Section 4
during any period from the time (i) the Agents shall have suspended solicitation
of offers for the purchase of Notes in their capacity as agents pursuant to a
request from the Company and (ii) no Agent shall then hold any Notes purchased
from the Company as principal, as the case may be, until the time the Company
shall determine that solicitation of offers for the purchase of Notes should be
resumed or an Agent shall subsequently purchase Notes from the Company as
principal.
(p) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file, and provide to the Agents a reasonable amount of time prior to such
filing, all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods prescribed by the 1934 Act and the rules and
regulations of the Commission thereunder.
(q) COMPLIANCE WITH RULE 463. The Company will file with the Commission
such reports on Form SR as may be required pursuant to Rule 463 of the 1933 Act
Regulations within the time periods prescribed thereunder.
SECTION 5. Conditions of Agents' Obligations.
---------------------------------
The obligations of one or more Agents to purchase Notes from the Company as
principal and to solicit offers for the purchase of Notes as an agent of the
Company, and the obligations of any purchasers of Notes sold through an Agent as
an agent of the Company, will be subject to the accuracy of the representations
and warranties on the part of the Company herein contained or contained in any
certificate of an officer of the Company or any of its subsidiaries delivered
pursuant to the provisions hereof, to the performance and observance by the
Company of its covenants and other obligations hereunder, and to the following
additional conditions precedent:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective under the
1933 Act and no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Agents. A prospectus containing the
Rule 430A Information shall have been filed with the Commission in accordance
with Rule 424(b) (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon
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Rule 434, a Term Sheet shall have been filed with the Commission in accordance
with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. On the date hereof, the Agents shall
have received the favorable opinion, dated as of the date hereof, of Hutchins,
Wheeler & Dittmar, a professional corporation, counsel for the Company, in form
and substance satisfactory to counsel for the Agents, together with signed or
reproduced copies of such letter for each of the other Agents, to the effect set
forth in Exhibit B-1 hereto and to such further effect as counsel to the Agents
may reasonably request. Such opinion shall not state that it is to be governed
or qualified by, or that it is otherwise subject to, any treatise, written
policy or other documents relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).
Such counsel may state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.
(c) OPINION OF GENERAL COUNSEL FOR COMPANY. On the date hereof, the Agents
shall have received the favorable opinion, dated as of date hereof, of Robert J.
Jacobs, Executive Vice President, Secretary and General Counsel for the Company,
in form and substance satisfactory to counsel for the Agents, together with
signed or reproduced copies of such letter for each of the other Agents, to the
effect set forth in Exhibit B-2 hereto and to such further effect as counsel to
the Agents may reasonably request. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other documents relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).
Such counsel may state that, insofar as such opinion involves factual matters,
he has relied, to the extent he deems proper, upon certificates of officers of
the Company and its subsidiaries and certificates of public officials.
(d) OPINION OF COUNSEL FOR AGENTS. On the date hereof, the Agents shall
have received the favorable opinion, dated as of date hereof, of Brown & Wood
LLP, counsel for the Agents, together with signed or reproduced copies of such
letter for each of the other Agents. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other than the law
of the State of New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Agents. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) OFFICERS' CERTIFICATE. On the date hereof, (A) the Prospectus, as it
may then be amended or supplemented, shall not contain any untrue statement of a
material fact or any omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; (B) there shall not have been, since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business; (C)
neither the Company nor any of its subsidiaries shall have received any
communication from any regulatory, governmental or quasi-
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<PAGE> 23
governmental authority or agency (including FHLMC, Fannie Mae, GNMA, FHA and VA)
which is material and adverse to the business prospects of the Company or its
subsidiaries; (D) no action, suit, proceeding at law or in equity shall be
pending or, to the knowledge of the Company, threatened, against the Company or
any of its subsidiaries before or by any government, governmental
instrumentality or court, domestic or foreign, that could result in any Material
Adverse Effect other than as set forth in the Prospectus; (E) the
representations and warranties in Section 1(a) hereof shall be true and correct
with the same force and effect as though expressly made at and as of the date
hereof; (F) the Company shall have complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the date
hereof; and (G) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission; and the
Representatives shall have received a certificate of the Chief Executive Officer
and the Chief Financial Officer of the Company, dated as of the date hereof, to
such effect.
(f) ACCOUNTANTS' COMFORT LETTERS. At the time of the execution of this
Agreement, the Agents shall have received from each of Arthur Andersen LLP,
Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, a letter dated the date
hereof, in form and substance satisfactory to the Agents, together with signed
or reproduced copies of such letter for each of the other Agents and to such
further effect as counsel to the Agents may reasonably request, and containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to agents with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(g) ADDITIONAL DOCUMENTS. On the date hereof, counsel for the Agents shall
have been furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the Notes as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Notes as herein contemplated shall be satisfactory
in form and substance to the Agents and counsel for the Agents.
(h) TERMINATION OF AGREEMENT. If any condition specified in this Section 5
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the applicable Agent or Agents by notice to the
Company at any time and any such termination shall be without liability of any
party to any other party except as provided in Section 10 hereof and except that
Sections 8, 9, 11, 14 and 15 hereof shall survive any such termination and
remain in full force and effect.
SECTION 6. Delivery of and Payment for Notes Sold through an Agent as Agent.
----------------------------------------------------------------
Delivery of Notes sold through an Agent as an agent of the Company shall be
made by the Company to such Agent for the account of any purchaser only against
payment therefor in immediately available funds. In the event that a purchaser
shall fail either to accept delivery of or to make payment for a Note on the
date fixed for settlement, such Agent shall promptly notify the Company and
deliver such Note to the Company and, if such Agent has theretofore paid the
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<PAGE> 24
Company for such Note, the Company will promptly return such funds to such
Agent. If such failure has occurred for any reason other than default by such
Agent in the performance of its obligations hereunder, the Company will
reimburse such Agent on an equitable basis for its loss of the use of the funds
for the period such funds were credited to the Company's account.
SECTION 7. Additional Covenants of the Company.
-----------------------------------
The Company further covenants and agrees with each Agent as follows:
(a) REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each acceptance by the
Company of an offer for the purchase of Notes (whether to one or more Agents as
principal or through an Agent as agent), and each delivery of Notes (whether to
one or more Agents as principal or through an Agent as agent), shall be deemed
to be an affirmation that the representations and warranties of the Company
herein contained and contained in any certificate theretofore delivered to the
Agents pursuant hereto are true and correct at the time of such acceptance or
sale, as the case may be, and an undertaking that such representations and
warranties will be true and correct at the time of delivery to such Agent(s) or
to the purchaser or its agent, as the case may be, of the Notes relating to such
acceptance or sale, as the case may be, as though made at and as of each such
time (it being understood that such representations and warranties shall relate
to the Registration Statement and Prospectus as amended and supplemented to each
such time).
(b) SUBSEQUENT DELIVERY OF CERTIFICATES. Each time that (i) the
Registration Statement or the Prospectus shall be amended or supplemented (other
than by an amendment or supplement providing solely for the determination of the
variable terms of the Notes or relating solely to the offering of securities
other than the Notes), (ii) (if required in connection with the purchase of
Notes from the Company by one or more Agents as principal) the Company sells
Notes to one or more Agents as principal or (iii) the Company sells Notes in a
form not previously certified to the Agents by the Company, the Company shall
furnish or cause to be furnished to the Agent(s), forthwith a certificate dated
the date of filing with the Commission or the date of effectiveness of such
amendment or supplement, as applicable, or the date of such sale, as the case
may be, in form satisfactory to the Agent(s) to the effect that the statements
contained in the certificate referred to in Section 5(e) hereof which were last
furnished to the Agents are true and correct at the time of the filing or
effectiveness of such amendment or supplement, as applicable, or the time of
such sale, as the case may be, as though made at and as of such time (except
that such statements shall be deemed to relate to the Registration Statement and
the Prospectus as amended and supplemented to such time) or, in lieu of such
certificate, a certificate of the same tenor as the certificate referred to in
Section 5(e) hereof, modified as necessary to relate to the Registration
Statement and the Prospectus as amended and supplemented to the time of delivery
of such certificate (it being understood that, in the case of clause (ii) above,
any such certificate shall also include a certification that there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise since the date of the agreement by
such Agent(s) to purchase Notes from the Company as principal).
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<PAGE> 25
(c) SUBSEQUENT DELIVERY OF LEGAL OPINIONS. Each time that (i) the
Registration Statement or the Prospectus shall be amended or supplemented (other
than by an amendment or supplement providing solely for the determination of the
variable terms of the Notes or relating solely to the offering of securities
other than the Notes), (ii) (if required in connection with the purchase of
Notes from the Company by one or more Agents as principal) the Company sells
Notes to one or more Agents as principal or (iii) the Company sells Notes in a
form not previously certified to the Agents by the Company, the Company shall
furnish or cause to be furnished forthwith to the Agent(s) and to counsel to the
Agents (1) the written opinion of Hutchins, Wheeler & Dittmar, a professional
corporation, counsel to the Company, or other counsel satisfactory to the
Agent(s), and (2) the written opinion of Robert J. Jacobs, Executive Vice
President, Secretary and General Counsel for the Company, each dated the date of
filing with the Commission or the date of effectiveness of such amendment or
supplement, as applicable, or the date of such sale, as the case may be, in form
and substance satisfactory to the Agent(s), of the same tenor as the opinions
referred to in Sections 5(b) and 5(c) hereof, respectively, but modified, as
necessary, to relate to the Registration Statement and the Prospectus as amended
and supplemented to the time of delivery of such opinions or, in lieu of such
opinions, counsel last furnishing such opinions to the Agent(s) shall each
furnish the Agent(s) with a letter substantially to the effect that the Agent(s)
may rely on such counsel's last opinion to the same extent as though it was
dated the date of such letter authorizing reliance (except that statements in
such last opinion shall be deemed to relate to the Registration Statement and
the Prospectus as amended and supplemented to the time of delivery of such
letter authorizing reliance).
(d) SUBSEQUENT DELIVERY OF COMFORT LETTERS. Each time that (i) the
Registration Statement or the Prospectus shall be amended or supplemented to
include additional financial information (other than by an amendment or
supplement relating solely to the issuance and/or offering of securities other
than the Notes) or (ii) (if required in connection with the purchase of Notes
from the Company by one or more Agents as principal) the Company sells Notes to
one or more Agents as principal, the Company shall cause each of Arthur Andersen
LLP, Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP forthwith to furnish to
the Agent(s) a letter, dated the date of filing with the Commission or the date
of effectiveness of such amendment or supplement, as applicable, or the date of
such sale, as the case may be, in form satisfactory to the Agent(s), of the same
tenor as the letter referred to in Section 5(f) hereof but modified to relate to
the Registration Statement and Prospectus as amended and supplemented to the
date of such letter.
SECTION 8. Indemnification.
---------------
(a) INDEMNIFICATION OF THE AGENTS. The Company agrees to indemnify and hold
harmless each Agent and each person, if any, who controls such Agent within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto, including the Rule 430A Information and the Rule
434 Information, as applicable), or the omission or
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<PAGE> 26
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arising out
of an untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, provided that (subject to Section
8(d) hereof) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by such Agent), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under subparagraph (i) or (ii)
above;
PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the Agents
expressly for use in the Registration Statement (or any amendment thereto),
including the relevant Rule 430A Information and Rule 434 Information, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto). The foregoing indemnity with respect to any untrue statement contained
in or any omission from a preliminary prospectus shall not inure to the benefit
of any Agent (or any person who controls such Agent within the meaning of
Section 15 of the 1933 Act) from whom the person asserting any such loss,
liability, claim, damage or expense purchased any of the Notes that are the
subject thereof if the Company shall sustain the burden of proving that such
person was not sent or given a copy of the Prospectus (or any amendment or
supplement thereto) at or prior to the written confirmation of the sale of such
Notes to such person and the untrue statement contained in or the omission from
such preliminary prospectus was corrected in the Prospectus (or any amendment or
supplement thereto), unless such failure resulted from noncompliance by the
Company with its obligations hereunder to furnish the Agents with copies of the
Prospectus (or any amendment or supplement thereto).]
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Agent
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in Section 8(a) hereof, as
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<PAGE> 27
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the relevant Rule 430A Information and Rule 434
Information, or any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Agent expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 8(a) hereof,
counsel to the indemnified parties shall be selected by the applicable Agent(s)
(PROVIDED, that in the case of an action involving two or more Agents that shall
have purchased Notes from the Company in a syndicate as principals, the Agent
that acted as managing underwriter shall make such selection) and, in the case
of parties indemnified pursuant to Section 8(b) hereof, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 8 or 9 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 8(a)(ii) effected without its written consent if (i) such settlement is
entered into more than sixty (60) days after receipt by such indemnifying party
of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least forty-five (45) days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
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SECTION 9. Contribution.
------------
If the indemnification provided for in Section 8 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the applicable
Agent(s), on the other hand, from the offering of the Notes that were the
subject of the claim for indemnification or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
applicable Agent(s) on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
applicable Agent(s) on the other hand in connection with the offering of the
Notes that were the subject of the claim for indemnification shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of such Notes (before deducting expenses) received by the Company and
the total discount or commission received by each applicable Agent, as the case
may be, bears to the aggregate initial offering price of such Notes.
The relative fault of the Company, on the one hand, and the applicable
Agent(s), on the other hand, shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the applicable Agent(s) and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Agents agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
(even if the applicable Agent(s) were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 9. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 9 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any applicable untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 9, no Agent shall be
required to contribute any amount in excess of the amount by which the total
discount or commission received by such Agent in connection with the offering of
the Notes that were the subject of the claim for indemnification exceeds the
amount of any damages which such Agent has otherwise been required to pay by
reason of any applicable untrue or alleged untrue statement or omission or
alleged omission.
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<PAGE> 29
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9, each person, if any, who controls an Agent
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Agent, and each director of
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. In addition, in connection with an offering of
Notes purchased from the Company by two or more Agents as principal, the
respective obligations of such Agents to contribute pursuant to this Section 9
are several in proportion to the aggregate principal amount of Notes that each
such Agent has agreed to purchase from the Company and not joint.
SECTION 10. Payment of Expenses.
-------------------
(a) EXPENSES. The Company will pay all expenses incident to the performance
of its obligations under this Agreement, including:
(i) The preparation, printing, filing and delivery of the Registration
Statement (including financial statements and exhibits) as originally filed
and all amendments thereto and any preliminary prospectus, the Prospectus
and any amendments or supplements thereto (including, without limitation,
any Prospectus required to be delivered pursuant to Section 4(3) of the
1933 Act);
(ii) The preparation, printing and delivery of this Agreement and the
Indenture;
(iii) The preparation, issuance and delivery of the Notes, including
any fees and expenses relating to the eligibility and issuance of Notes in
book-entry form and the cost of obtaining CUSIP or other identification
numbers for the Notes;
(iv) The fees and disbursements of the Company's accountants, counsel
and other advisors or agents (including any calculation agent or exchange
rate agent) and of the Trustee and its counsel;
(v) The reasonable fees and disbursements of counsel for the Agents
incurred in connection with the establishment of the Program and incurred
from time to time in connection with the transactions contemplated hereby,
unless otherwise agreed to between the Company and the applicable Agent(s)
and/or Additional Agent(s) pursuant to a terms agreement with respect to
such transactions;
(vi) The qualification of the Notes under securities laws in
accordance with the provisions of Section 4(f) hereof, including filing
fees and the reasonable fees and
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<PAGE> 30
disbursements of counsel for the Agents in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto;
(vii) The printing and delivery to the Agents of copies of each
preliminary prospectus and any amendments or supplements thereto;
(viii) The preparation, printing and delivery to the Agents of copies
of the Blue Sky Survey and any supplement thereto;
(ix) The fees charged by nationally recognized statistical rating
organizations for the rating of the Program and the Notes;
(x) The fees and expenses incurred in connection with any listing of
Notes on a securities exchange;
(xi) The filing fees incident to, and the reasonable fees and
disbursements of counsel to the Agents in connection with, the review, if
any, by the National Association of Securities Dealers, Inc. (the "NASD")
of the terms of the sale of the Notes; and
(xii) Any advertising and other out-of-pocket expenses of the Agents
incurred with the approval of the Company.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the Agents
in accordance with the provisions of Section 5 or Section 12(b)(i) hereof, the
Company shall reimburse the Agents for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Agents and
the costs and expenses incurred in connection with the updating and delivery of
any Prospectus that may be required under the 1933 Act or the 1934 Act.
SECTION 11. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement
or in certificates of officers of the Company or any of its subsidiaries
submitted pursuant hereto or thereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the Agents
or any controlling person of an Agent, or by or on behalf of the Company, and
shall survive each delivery of and payment for the Notes.
SECTION 12. Termination.
-----------
(a) TERMINATION OF THIS AGREEMENT. This Agreement (excluding any agreement
by one or more Agents to purchase Notes from the Company as principal) may be
terminated for any reason, at any time by either the Company or an Agent, as to
itself, upon the giving of prior written notice of such termination to the other
party hereto.
(b) TERMINATION OF AGREEMENT TO PURCHASE NOTES AS PRINCIPAL. The applicable
Agent(s) may terminate any agreement by such Agent(s) to purchase Notes from the
Company
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<PAGE> 31
as principal, immediately upon notice to the Company, at any time prior to the
Settlement Date relating thereto, if (i) there has been, since the date of such
agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) there has occurred any
material adverse change in the financial markets in the United States or, if
such Notes are denominated and/or payable in, or indexed to, one or more foreign
or composite currencies, in the international financial markets, or any outbreak
of hostilities or escalation thereof or other calamity or crisis or any change
or development or event involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of such Agent(s),
impracticable to market such Notes or enforce contracts for the sale of such
Notes, or (iii) trading in any securities of the Company has been suspended or
limited by the Commission or a national securities exchange, or if trading
generally on the New York Stock Exchange or the American Stock Exchange or in
the Nasdaq National Market has been suspended or limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by either of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) a banking
moratorium has been declared by either Federal or New York authorities or by the
relevant authorities in the country or countries of origin of any foreign or
composite currency in which such Notes are denominated and/or payable, or (v)
the rating assigned by any nationally recognized statistical rating organization
to the Program or any debt securities (including the Notes) of the Company as of
the date of such agreement shall have been lowered or withdrawn since that date
or if any such rating organization shall have publicly announced that it has
under surveillance or review its rating of the Program or any such debt
securities, or (vi) there shall have come to the attention of such Agent(s) any
facts that would cause such Agent(s) to believe that the Prospectus, at the time
it was required to be delivered to a purchaser of such Notes, included an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time of such delivery, not misleading.
(c) GENERAL. In the event of any such termination under paragraph (a) or
(b) of this Section, neither party will have any liability to the other party
hereto, except that (i) the Agents shall be entitled to any commissions earned
in accordance with the third paragraph of Section 3(b) hereof, (ii) if at the
time of termination (a) any Agent shall own any Notes purchased by it from the
Company as principal or (b) an offer to purchase any of the Notes has been
accepted by the Company but the time of delivery to the purchaser or his agent
of such Notes relating thereto has not occurred, the covenants set forth in
Sections 4 and 7 hereof shall remain in effect until such Notes are so resold or
delivered, as the case may be, and (iii) the covenant set forth in Sections 4(e)
and 4(k) hereof, the provisions of Section 10 hereof, the indemnity and
contribution agreements set forth in Sections 8 and 9 hereof, and the provisions
of Sections 11, 14 and 15 hereof shall remain in effect.
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<PAGE> 32
SECTION 13. Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication.
Notices to the Company shall be directed to it at:
7301 Baymeadows Way
Jacksonville, Florida 32256
Attention: Chairman
Facsimile: *
with copies to:
Hutchins, Wheeler & Dittmar, a Professional Corporation
101 Federal St.
Boston, MA 02110
Attention: Mary Ellen O'Mara
Facsimile: *
Notices to any Agent shall be directed to such Agent as follows:
If to Merrill Lynch, at:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
250 Vesey Street
New York, New York 10281-1201
Attention: *
Facsimile: *
If to Chase, at:
Chase Securities Inc.
270 Park Avenue
6th Floor
New York, New York 10017
Attention: Medium Term Note Desk
Facsimile: 212-834-6081
If to NationsBank, at:
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<PAGE> 33
NationsBank Capital Markets, Inc.
*
Attention: *
Facsimile: *
If to Smith Barney, at:
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Attention: *
Facsimile: *
SECTION 14. Parties.
-------
This Agreement shall inure to the benefit of and be binding upon the Agents
and the Company and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the parties hereto and their respective successors and
the controlling persons, officers and directors referred to in Sections 8 and 9
hereof and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the parties hereto and their
respective successors, and said controlling persons, officers and directors and
their heirs and legal representatives, and for the benefit of no other person,
firm or corporation. No purchaser of Notes shall be deemed to be a successor by
reason merely of such purchase.
SECTION 15. GOVERNING LAW; FORUM.
--------------------
THIS AGREEMENT AND ALL THE RIGHTS AND OBLIGATIONS OF THE PARTIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY AGAINST ANY AGENT IN
CONNECTION WITH OR ARISING UNDER THIS AGREEMENT SHALL BE BROUGHT SOLELY IN THE
STATE OR FEDERAL COURT OF APPROPRIATE JURISDICTION LOCATED IN THE BOROUGH OF
MANHATTAN, THE CITY OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 16. Effect of Headings.
------------------
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 17. Counterparts.
------------
29
<PAGE> 34
This Agreement may be executed in one or more counterparts and, if executed
in more than one counterpart, the executed counterparts hereof shall constitute
a single instrument.
30
<PAGE> 35
If the foregoing is in accordance with the Agents' understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this Distribution Agreement, along with all counterparts, will become a binding
agreement among the Agents and the Company in accordance with its terms.
Very truly yours,
HOMESIDE LENDING, INC.
By:
-----------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------
Authorized Signatory
CHASE SECURITIES INC.
By:
--------------------------------
Authorized Signatory
NATIONSBANK CAPITAL MARKETS, INC.
By:
--------------------------------
Authorized Signatory
SMITH BARNEY INC.
By:
--------------------------------
Authorized Signatory
31
<PAGE> 36
SCHEDULE A
As compensation for the services of the Agents hereunder, the Company shall
pay the applicable Agent, on a discount basis, a commission for the sale of each
Note equal to the principal amount of such Note multiplied by the appropriate
percentage set forth below:
PERCENT OF
MATURITY RANGES PRINCIPAL AMOUNT
- --------------- ----------------
From 9 months to less than 1 year ......................... .125%
From 1 year to less than 18 months ........................ .150
From 18 months to less than 2 years ....................... .200
From 2 years to less than 3 years ......................... .250
From 3 years to less than 4 years ......................... .350
From 4 years to less than 5 years ......................... .450
From 5 years to less than 6 years ......................... .500
From 6 years to less than 7 years ......................... .550
From 7 years to less than 10 years ........................ .600
From 10 years to less than 15 years ....................... .625
From 15 years to less than 20 years ....................... .700
From 20 years to 30 years ................................. .750
Greater than 30 years ..................................... 1
- --------
1 As agreed to by the Company and the applicable Agent at the time of sale.
Sch A-1
<PAGE> 37
EXHIBIT A
PRICING TERMS
Principal Amount: $_______
(or principal amount of foreign or composite currency)
Interest Rate or Formula:
If Fixed Rate Note,
Interest Rate:
Interest Payment Dates:
If Floating Rate Note,
Interest Rate Basis(es):
If LIBOR,
[ ] LIBOR Reuters Page:
[ ] LIBOR Telerate Page:
Designated LIBOR Currency:
If CMT Rate,
Designated CMT Telerate Page:
If Telerate Page 7052:
[ ] Weekly Average
[ ] Monthly Average
Designated CMT Maturity Index:
Index Maturity:
Spread and/or Spread Multiplier, if any:
Initial Interest Rate, if any:
Initial Interest Reset Date:
Interest Reset Dates:
Interest Payment Dates:
Maximum Interest Rate, if any:
Minimum Interest Rate, if any:
Fixed Rate Commencement Date, if any:
Fixed Interest Rate, if any:
Day Count Convention:
Calculation Agent:
Redemption Provisions:
Initial Redemption Date:
Initial Redemption Percentage:
Annual Redemption Percentage Reduction, if any:
Repayment Provisions:
Optional Repayment Date(s):
Original Issue Date:
Stated Maturity Date:
Specified Currency:
Exh A-1
<PAGE> 38
Exchange Rate Agent:
Authorized Denomination:
Purchase Price: ___%, plus accrued interest, if any, from ___________
Price to Public: ___%, plus accrued interest, if any, from __________
Issue Price:
Settlement Date and Time:
Additional/Other Terms:
Also, in connection with the purchase of Notes from the Company by one or more
Agents as principal, agreement as to whether the following will be required:
Officers' Certificate pursuant to Section 7(b) of the Distribution
Agreement. Legal Opinion pursuant to Section 7(c) of the Distribution
Agreement. Comfort Letters pursuant to Section 7(d) of the Distribution
Agreement.
Exh A-2
<PAGE> 39
EXHIBIT B-1
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
1. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus, and the Company has corporate power and authority to issue the Notes
and to enter into and perform its obligations under the Distribution Agreement,
the Indenture and the Notes.
2. If applicable, the authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the Distribution
Agreement); the shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, or under the charter
or by-laws of the Company, or under any agreement known to us to which the
Company is a party.
3. The Distribution Agreement has been duly authorized, executed and
delivered by the Company.
4. The Indenture has been duly authorized, executed and delivered by the
Company and (assuming due authorization, execution and delivery thereof by the
applicable Trustee) constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, (B) general equitable principles (regardless of
whether enforcement is considered in a proceeding in equity or at law), (C)
requirements that a claim with respect to any debt securities issued under the
Indenture that are payable in a foreign or composite currency (or a foreign or
composite currency judgment in respect of such claim) be converted into U.S.
dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law or (D) governmental authority to limit, delay or prohibit the
making of payments outside the United States.
5. The Indenture has been duly qualified under the 1939 Act.
6. The Notes have been duly authorized by the Company for offer, sale,
issuance and delivery pursuant to the Distribution Agreement and, when issued,
authenticated and delivered in the manner provided for in the Indenture and
delivered against payment of the consideration therefor, will constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their
Exh B-1-1
<PAGE> 40
terms, except as the enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, (B) general equitable principles
(regardless of whether enforcement is considered in a proceeding in equity or at
law), (C) requirements that a claim with respect to any Notes payable in a
foreign or composite currency (or a foreign or composite currency judgment in
respect of such claim) be converted into U.S. dollars at a rate of exchange
prevailing on a date determined pursuant to applicable law or (D) governmental
authority to limit, delay or prohibit the making of payments outside the United
States; and the Notes, in the forms certified on the date hereof, are in the
form contemplated by, and each registered holder thereof is entitled to the
benefits of, the Indenture.
7. The Indenture and the Notes, in the forms certified on the date hereof,
conform in all material respects to the statements relating thereto contained in
the Prospectus and are in substantially the form filed or incorporated by
reference, as the case may be, as an exhibit to the Registration Statement.
8. The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
9. The Registration Statement, including any Rule 462(b) Registration
Statement and the relevant Rule 430A Information and Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom and the Trustee's Statement of Eligibility on Form T-1 (the
"Form T-1"), as to which we express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
10. If Rule 434 has been relied upon, the Prospectus was not "materially
different," as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective.
11. To the best of our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
of its subsidiaries is a party, or to which the property of the Company or any
of its subsidiaries is subject, before or brought by any court or governmental
or quasi-governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated
Exh B-1-2
<PAGE> 41
in the Distribution Agreement or the performance by the Company of its
obligations thereunder.
12. The information in the Prospectus under "Description of Debt
Securities," "Description of Notes," "Special Provisions Relating to Foreign
Currency Notes" and "Certain United States Federal Income Tax Considerations,"
or any caption purporting to cover such matters, the information in the
Registration Statement under Item 14, to the extent that such information
constitutes matters of law, summaries of legal matters, the Company's charter
and bylaws or legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.
13. To the best of our knowledge, there are no statutes or regulations that
are required to be described in the Prospectus that are not described as
required.
14. All descriptions in the Registration Statement of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
15. To the best of our knowledge, the Company is not in violation of its
charter or by-laws and no default by the Company exists in the due performance
or observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.
16. All necessary corporate action by the Company has been taken in
connection with, and no filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental or quasi-governmental authority or agency, domestic or foreign
(other than under the 1933 Act and the 1933 Act Regulations, which have been
obtained, or as may be required under the securities or blue sky laws of the
various states, as to which we need express no opinion), is necessary or
required for, the due authorization, execution, delivery and performance by the
Company of its obligations under the Distribution Agreement, the Indenture or
the Notes or for the offering, issuance or sale of the Notes or the consummation
of the transactions contemplated in the Prospectus.
17. The execution, delivery and performance of the Distribution Agreement,
the Indenture and the Notes and any other agreement or instrument entered into
or issued or to be entered into or issued by the Company in connection with the
transactions contemplated in the Prospectus, the consummation of the
transactions contemplated in the Prospectus (including the issuance and sale of
the Notes and the use of the proceeds
Exh B-1-3
<PAGE> 42
therefrom as described in the Prospectus) and the compliance by the Company with
its obligations thereunder do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(x) of the
Distribution Agreement) under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which the
Company is a party or by which it may be bound, or to which any of the property
or assets of the Company is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its respective properties, assets or operations.
18. To the best of our knowledge, there are no persons with registration
rights or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933 Act
except as disclosed in the Prospectus.
19. The Company is not, and upon the issuance and sale of the Notes and the
application of the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" within the meaning of the 1940 Act.
20. The Notes, in the forms certified on the date hereof, will be excluded
or exempted under, or beyond the purview of, the Commodity Exchange Act and the
Commodity Exchange Act Regulations.
We have participated in the preparation of the Registration Statement and
the Prospectus and in conferences and telephone conversations with officers and
representatives of the Company, representatives of Arthur Andersen LLP, Coopers
& Lybrand L.L.P. and KPMG Peat Marwick LLP, the independent public accountants
for the Company and certain of its subsidiaries, your representatives and
representatives of your counsel, during which conferences and conversations the
contents of the Registration Statement and the Prospectus and related matters
were discussed. Except as set forth in paragraph 12 above, we have not
undertaken to verify independently the statements made and information provided
to us in the documents and conferences referred to above, but nevertheless we
hereby confirm to you that nothing has come to our attention that would lead us
to believe that the Registration Statement or any amendment thereto, including
the relevant Rule 430A Information and Rule 434 Information, (if applicable),
(except for financial statements and schedules and other financial data included
therein or omitted therefrom and for the Form T-1, as to which we need make no
statement), at the time such Registration Statement or any such amendment became
effective or at the date of any agreement of the applicable Agent(s) to purchase
Notes from the Company as principal, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
or any amendment
Exh B-1-4
<PAGE> 43
or supplement thereto (except for financial statements and schedules and other
financial data included therein or omitted therefrom, as to which we need make
no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the date hereof, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Exh B-1-5
<PAGE> 44
Exhibit B-2
FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
1. The Company is a corporation duly incorporated, validly existing and in
corporate good standing under the laws of the State of Florida.
2. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus, and the Company has corporate power and authority to issue the Notes
and to enter into and perform its obligations under the Distribution Agreement,
the Indenture and the Notes.
3. If applicable, the authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the Distribution
Agreement); the shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, or under the charter
or by-laws of the Company, or under any agreement known to us to which the
Company is a party.
4. Each subsidiary of the Company is a corporation duly incorporated,
validly existing and in corporate good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to transact business and is in good standing as a foreign
corporation in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect.
5. To the best of my knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
of its subsidiaries is a party, or to which the property of the Company or any
of its subsidiaries is subject, before or brought by any court or governmental
or quasi-governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in the
Distribution Agreement, the Indenture or the Notes or the performance by the
Company of its obligations thereunder.
Exh B-2-1
<PAGE> 45
6. The information in the Prospectus under "Risk Factors--Regulation,
Possible Changes and Related Matters," "Business--Properties,"
"Business--Regulation," "Business--Litigation" to the extent that it constitutes
matters of law, summaries of legal matters or legal conclusions, has been
reviewed by me and is correct in all material respects.
7. To the best of my knowledge, none of the Company and or any of its
subsidiaries is in violation of its charter or by-laws and no default by the
Company or any of its subsidiaries exists in the due performance or observance
of any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement which would have a Material Adverse Effect.
8. All necessary corporate action by the Company has been taken in
connection with, and no filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental or quasi-governmental authority or agency, domestic or foreign
(other than under the 1933 Act and the 1933 Act Regulations, or as may be
required under the securities or blue sky laws of the various states, as to
which, in each case, I need express no opinion) is necessary or required for,
the due authorization, execution and delivery of the Distribution Agreement, the
Indenture or the Notes or for the offering, issuance or sale of the Notes.
9. The execution, delivery and performance of the Distribution Agreement,
the Indenture and the Notes and the consummation of the transactions
contemplated herein, therein and in the Registration Statement (including the
issuance and sale of the Notes and the use of the proceeds from the sale of the
Notes as described in the Prospectus under the caption "Use of Proceeds") and
compliance by the Company with its obligations under the Distribution Agreement,
the Indenture and the Notes do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(x) of the
Distribution Agreement) under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument,
known to me, to which the Company or any of its subsidiaries is a party or by
which any of them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any of its subsidiaries,
or any applicable law, statute, rule, regulation, judgment, order, writ or
decree, known to me (other than under the 1933 Act and the 1933 Act Regulations
or under the securities or blue sky laws of the various states, to which, in
each case, I express no opinion), of any government, government instrumentality
or court, domestic
Exh B-2-2
<PAGE> 46
or foreign, having jurisdiction over the Company, any of its subsidiaries or any
of their respective properties, assets or operations.
I have read the Registration Statement and the Prospectus. I did not
independently verify the accuracy or completeness of the statements made in the
Registration Statement and the Prospectus and I cannot and do not assume
responsibility for or pass on the accuracy and completeness of such statements,
except as set forth in paragraph 6 above and except insofar as such statements
relate to me. Subject to the foregoing, I hereby confirm to you that nothing has
come to my attention that would lead me to believe that the Registration
Statement or any amendment thereto, including the relevant Rule 430A Information
and Rule 434 Information (if applicable), (except for financial statements and
schedules and other financial data included therein or omitted therefrom, as to
which I need make no statement), at the time such Registration Statement or any
such amendment became effective, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
or any amendment or supplement thereto (except for financial statements and
schedules and other financial data included therein or omitted therefrom, as to
which I need make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the date
hereof, included or includes any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Exh B-2-3
<PAGE> 1
================================================================================
STATE OF FLORIDA
[FLORIDA STATE SEAL]
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of
Incorporation, as amended to date, of HOMESIDE LENDING, INC., a corporation
organized under the laws of the State of Florida, as shown by the records of
this office.
The document number of this corporation is J33658.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capitol, this the
Third day of February, 1997
[Florida State Seal] /s/ Sandra B. Mortham
CR2EO22 (2-95)
Sandra B. Mortham
Secretary of State
================================================================================
<PAGE> 2
ARTICLES OF INCORPORATION
OF
BANCBOSTON MORTGAGE COMPANIES, INC.
We, the undersigned, hereby associate ourselves together for the purpose of
becoming a corporation for profit under the laws of the State of Florida under
and pursuant to the following Articles of Incorporation:
ARTICLE I.
The name of the corporation shall be BancBoston Mortgage Companies, Inc.
ARTICLE II.
The general nature of the businesses to be transacted by the corporation,
shall be as follows:
(a) To buy, sell and otherwise dispose of, hold, own, improve, lease,
mortgage and otherwise encumber, and to trade and deal in all kinds of real
estate and any interests therein;
(b) To buy, sell and otherwise dispose of, hold, own, manufacture, produce,
export, import, mortgage, pledge, hypothecate and otherwise encumber, and to
trade and deal in all kinds of personal property, either as principal or agent,
upon commission or otherwise, including mortgages and deeds of trust on real
property;
(c) To acquire by subscription, purchase or otherwise, to hold for
investment or resale, to mortgage, pledge, hypothecate and to sell or otherwise
dispose of, and in all ways to trade and deal in and with, as principal or
agent, and upon
<PAGE> 3
commission or otherwise, stocks, bonds, notes, debentures, mortgages,
certificates of indebtedness, and other obligations and securities of
individuals and of corporations, private or public, domestic or foreign, and of
municipal and governmental subdivisions, agencies and authorities, and
investment securities and choses in action generally; with power to issue its
own securities in exchange therefor to the extent permitted by the corporation
laws of the State of Florida; to collect the interest and dividends on its
holdings as well as the principal thereof; to make advances upon or for the
benefit of, and to do all things suitable and proper for the protection,
conservation or enhancement in value of any securities, choses in action,
properties or investments held by it; and to possess and exercise, with
respect thereto, all of the rights, powers and privileges of individual owners
or holders thereof, and to exercise any and all voting power thereon;
(d) Without limit as to amount, to borrow money for the purposes of the
corporation, to draw, make, accept, endorse, discount, execute, issue and
transfer promissory notes, debentures, bills of exchange, bonds, warrants and
other negotiable or transferable instruments, and to issue, sell and dispose
of bonds, notes, debentures or other obligations of the corporation from time to
time for any of its objects and purposes, with or without security, and, if so
determined, to secure the same by mortgage, pledge, deed of trust or otherwise;
-2-
<PAGE> 4
(e) To acquire the good will, rights and property, and the whole or any
part of the assets, tangible or intangible, and to undertake or in any way
assume the liabilities, of any person, firm, association or corporation; to pay
therefor in cash, the stock, bonds, notes, debentures or other obligations of
the corporation, or otherwise, or by undertaking the whole or any part of the
liabilities of the transferor; to hold or in any manner dispose of the whole or
any part of the property so acquired; to conduct in any lawful manner the whole
or any part of any business so acquired, and to exercise all the powers
necessary or convenient in and about the conduct and management or such
business;
(f) To aid by loan, subsidy, guaranty, or in any other manner, any
corporation, firm, syndicate, association or individual to the extent the Board
of Directors deems advisable to promote the business, interests and purposes of
the corporation, and any corporation whose stocks, bonds, securities or other
obligations are in any manner, either directly or indirectly, held or guaranteed
by the corporation; to do any and all other acts or things toward the
protection, conservation or enhancement in value of any such stocks, bonds,
securities or other obligations, and to do all and any acts or things designed
to accomplish any such purpose;
(g) To employ its surplus earnings or accumulated profits from time to time
as its Directors may determine, to purchase or otherwise acquire, to hold or
otherwise utilize, and
-3-
<PAGE> 5
to reissue, sell, or otherwise dispose of or turn to account, as its Directors
may from time to time determine, the stocks, bonds, debentures or other
securities of the corporation, to the extent permitted by law;
(h) To have one or more offices, and to carry on its operations and to
transact its business and promote its objects and purposes in any part of the
world, either alone or with other individuals, firms, syndicates, partnerships,
associations, corporations, authorities or other entities, without restriction
as to place or amount, and to do all lawful acts and things necessary, suitable
or proper for the accomplishment of any of the purposes, or the attainment of
any of the objects, or the furtherance of any of the powers herein set forth.
IN GENERAL, and in connection with the foregoing, the corporation shall
have and may use, exercise and enjoy all the powers of like corporations
conferred by the corporation laws of the State of Florida, it being expressly
provided that the enumeration of the objects, powers or purposes herein above
specified shall not be held to limit or restrict in any manner the objects,
powers and purposes of the corporation, and that the objects, powers and
purposes specified in each of the clauses of this Article shall be regarded as
independent and cumulative purposes, powers and objects.
ARTICLE III.
The maximum number of shares of stock that the corporation is authorized to
have outstanding at any time shall
-4-
<PAGE> 6
be ten thousand (10,000) shares having a par value of One Dollar ($1.00) per
share, all of which shall be common stock of the same class. All stock issued
shall be fully paid and nonassessable. The stockholders shall have no preemptive
rights with respect to the capital stock or securities of the corporation, and
the corporation from time to time may issue and sell shares of its capital stock
of any class, may issue and grant rights and options to purchase shares of such
capital stock and may issue and sell its bonds, notes, debentures and other
securities convertible into stock of the corporation without offering such
shares, rights or options to purchase shares, bonds, notes, debentures or other
securities (whether now or hereafter authorized) to the stockholders then
holding shares of its capital stock.
ARTICLE IV.
The corporation shall have perpetual existence.
ARTICLE V.
The street address of the initial registered office of this corporation in
Florida shall be 100 West Bay Street, Jacksonville, Florida 32202 and its
initial registered agent at that address shall be Thomas H. Fish. The Board of
Directors may, from time to time, change the registered office and registered
agent of the corporation upon notification to the proper authorities.
-5-
<PAGE> 7
ARTICLE VI.
The number of the Directors of this corporation shall be not less than
three (3) nor more than fifteen (15) as fixed from time to time by the
provisions of the By-Laws.
ARTICLE VII.
The names and street addresses of the members of the first Board of
Directors, who, subject to the provisions of the By-Laws and these Articles of
Incorporation, shall hold office for the first year of the corporation's
existence or until their successors are elected and have qualified, are as
follows:
Name Street Address
---- --------------
Ira Stepanian 100 Federal Street
Executive Suite H0-2-5
Boston, Massachusetts 02110
Edwin B. Morris, III 100 Federal Street
Executive Suite H0-2-2A
Boston, Massachusetts 02110
Alan McKinnon 100 Federal Street
Finance Admin. H0-16-10
Boston, Massachusetts 02110
Thomas M. French, Jr. 100 West Bay Street
Jacksonville, Florida 32202
William R. Boling 100 West Bay Street
Jacksonville, Florida 32202
Stephen B. Matheson 100 West Bay Street
Jacksonville, Florida 32202
Joe K. Pickett 100 West Bay Street
Jacksonville, Florida 32202
-6-
<PAGE> 8
ARTICLE VIII.
The names and street addresses of the subscribers of these Articles of
Incorporation are as follows:
Name Street Address
---- --------------
Robert O. Mickler 225 Water Street,
Suite 1400
Jacksonville, Florida 32202
John R. Crawford 225 Water Street,
Suite 1400
Jacksonville, Florida 32202
ARTICLE IX.
In furtherance and not in limitation of the powers conferred by statute,
the following specific provisions are made for the regulation of the business
and the conduct of the affairs of the corporation:
(1) Subject to such restrictions, if any, as are herein expressed and such
further restrictions, if any, as may be set forth in the By-Laws, the Board of
Directors shall have the general management and control of the business and may
exercise all of the powers of the corporation except such as may be by statute,
or by the By-Laws as constituted from time to time, expressly conferred upon or
reserved to the stockholders.
(2) Subject always to such By-Laws as may be adopted from time to time by
the stockholders, the Board of Directors is expressly authorized to adopt, alter
and amend the By-Laws of the corporation, but any By-Law adopted, altered or
amended by the
-7-
<PAGE> 9
Directors may be altered, amended or repealed by the stockholders.
(3) The corporation shall have such officers as from time to time may be
provided in the By-Laws and such officers shall be designated in such manner and
shall hold their offices for such terms and shall have such powers and duties as
may be prescribed by the By-Laws or as may be determined from time to time by
the Board of Directors subject to the By-Laws.
(4) No Director or officer of this corporation shall, in the absence of
fraud, be disqualified by his office from dealing or contracting with this
corporation either as vendor, purchaser or otherwise, nor, in the absence of
fraud, shall any contract, transaction or act of this corporation be void or
voidable or affected by reason of the fact that any such director or officer, or
any firm of which any such director or officer is a member or an employee, or
any corporation of which any such director or officer is an officer, director,
stockholder or employee, has any interest in such contract, transaction or act,
whether or not adverse to the interest of this corporation, even though the vote
of the director or directors or officer or officers having such interest shall
have been necessary to obligate this corporation upon such contract, transaction
or act; and no director or directors or officer or officers having such interest
shall be liable to this corporation or to any stockholder or creditor thereof or
to any other person for any loss incurred by it under or by reason of any such
contract,
-8-
<PAGE> 10
transaction or act; nor shall any such director or directors or officer or
officers be accountable for any gains or profits realized thereon.
ARTICLE X.
This corporation reserves the right to amend, alter, change or repeal any
provisions contained herein in the manner now or hereafter prescribed by law,
and all rights conferred on stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, we, the undersigned subscribing incorporators, have
hereunto set our hands and seals for the purpose of forming this corporation
under the laws of the State of Florida, and we hereby make, subscribe,
acknowledge and file in the office of the Secretary of State of the State of
Florida these Articles of Incorporation and certify that the facts herein stated
are true, all on this 2nd day of September, 1986.
/s/ Robert O. Mickler (SEAL)
--------------------------
Robert O. Mickler
/s/ John R. Crawford (SEAL)
--------------------------
John R. Crawford
-9-
<PAGE> 11
STATE OF FLORIDA )
)
COUNTY OF DUVAL )
Before me personally appeared this day Robert O. Mickler and John R.
Crawford, the parties to the foregoing Articles of Incorporation, each to me
well known and to me known to be the individuals described in and who executed
the foregoing Articles of Incorporation, and they severally acknowledged before
me that they each made, subscribed and acknowledged the foregoing Articles of
Incorporation as their several voluntary act and deed and that the facts set
forth therein are true and correct.
WITNESS my hand and official seal on this 2nd day of September, 1986.
/s/ Brenda C. Farmer
---------------------------------
Notary Public, State of Florida
at Large
My commission expires:_________
(Notarial Seal}
-10-
<PAGE> 12
ACCEPTANCE BY REGISTERED AGENT
Having been named to accept service of process for BancBoston Mortgage
Companies, Inc., a Florida corporation, at the place designated in the Articles
of Incorporation of said corporation, I hereby accept such appointment and agree
to act in this capacity, and agree to comply with the provisions of law relating
to keeping said office open. I further acknowledge acceptance of the obligations
imposed upon registered agents by section 607.325, Florida Statutes
/s/ Thomas H. Fish
-----------------------------
Registered Agent
<PAGE> 13
CERTIFICATE AS TO AMENDMENT OF
ARTICLES OF INCORPORATION OF
BANCBOSTON MORTGAGE COMPANIES, INC.
-----------------------------------
We, Thomas M. French, Jr. and Thomas H. Fish, hereby certify that we are
the President and Secretary, respectively, of BancBoston Mortgage Companies,
Inc., a Florida corporation. We further certify that the following resolution
relating to the amendment of the Articles of Incorporation of said corporation
was unanimously approved and adopted by the stockholder of this corporation by
consent on April 21, 1987, and was unanimously approved and adopted by the
directors of said corporation at a meeting of the directors duly called and held
on April 21, 1987:
BE IT RESOLVED, that, effective immediately,
Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"Article I.
"The name of the corporation shall be BancBoston
Mortgage Corporation."
IN WITNESS WHEREOF, we have executed this certificate as President and
Secretary, respectively, of BancBoston Mortgage Companies, Inc., a Florida
corporation, and have caused the same to be sealed with the corporate seal this
2lst day of April, 1987.
/s/ Thomas M. French
---------------------------------------
As President of BancBoston Mortgage
Companies, Inc.
[BancBoston Corporate Seal] /s/ Thomas H. Fish
---------------------------------------
As Secretary of BancBoston Mortgage
Companies, Inc.
STATE OF FLORIDA .
----------
COUNTY OF DUVAL
---------
I HEREBY CERTIFY that on this day before me, an officer duly authorized in
the State and County aforesaid to take acknowledgments, personally appeared
Thomas M. French, Jr. and Thomas H. Fish, to me known to be the persons
described in and
<PAGE> 14
who executed the foregoing certificate as President and Secretary, respectively,
of BancBoston Mortgage Companies, Inc., the corporation named therein, and
personally acknowledged to and before me that they executed the same as the act
and deed of said corporation.
WITNESS my hand and official seal in said County and State this 21st day of
April, 1987.
/s/????????????
-----------------------------------
Notary Public, State and County
aforesaid
My commission expires: Dec. 9, 1989
(Notarial Seal)
<PAGE> 15
ARTICLES OF MERGER
of
STOCKTON, WHATLEY, DAVIN & COMPANY
BANCBOSTON MORTGAGE CORPORATION OF NEW ENGLAND
and
MORTGAGE CORPORATION OF THE SOUTH
with and into
BANCBOSTON MORTGAGE CORPORATION
1. BancBoston Mortgage Corporation, a Florida corporation, Stockton,
Whatley, Davin & Company, a Florida corporation, BancBoston Mortgage Corporation
of New England, a Massachusetts corporation, and Mortgage Corporation of the
South, an Alabama corporation, the undersigned corporations, each being validly
and legally formed under the laws of the respective states designated above,
have adopted a Plan of Merger.
2. The names of the constituent corporations are BancBoston Mortgage
Corporation, Stockton, Whatley, Davin & Company, BancBoston Mortgage Corporation
of New England, and Mortgage Corporation of the South.
3. The name of the surviving corporation to this merger is BancBoston
Mortgage Corporation.
4. The total number of outstanding shares of common stock of Stockton,
Whatley, Davin & Company is 10,000 shares, all of the same class. BancBoston
Mortgage Corporation owns one hundred : percent of such shares.
5. The total number of outstanding shares of common stock of BancBoston
Mortgage Corporation of New England is 500 shares, all of the same class.
BancBoston Mortgage Corporation owns one hundred percent of such shares.
<PAGE> 16
6. The total number of outstanding shares of common stock of Mortgage
Corporation of the South is 2,000 shares, all of the same class. BancBoston
Mortgage Corporation owns one hundred percent of such shares.
7. The articles of incorporation of Mortgage Corporation of the South are
on file in Jefferson County, Alabama.
8. No changes in the Articles of Incorporation of the surviving
corporation, BancBoston Mortgage Corporation, will be made.
9. The Plan of Merger was unanimously adopted by the Board of Directors of
BancBoston Mortgage Corporation on December 9, 1987, without a vote of the
stockholders of BancBoston Mortgage Corporation, pursuant to Section 607.221(4),
Florida Statutes.
10. The Plan of Merger was unanimously adopted by the Board of Directors of
Stockton, Whatley, Davin & Company on December 9, 1987, without a vote of the
stockholders of Stockton, Whatley, Davin & Company, pursuant to Section
607.227(1), Florida Statutes.
11. The Plan of Merger was unanimously adopted by the Board of Directors of
BancBoston Mortgage Corporation of New England on December 9, 1987, without a
vote of the stockholders of BancBoston Mortgage Corporation of New England,
pursuant to Chapter 156B, Section 82(a), Massachusetts General Law.
12. The Plan of Merger was unanimously adopted by the Board of Directors of
Mortgage Corporation of the South on December 9, 1987, without a vote of the
stockholders, pursuant to Section 10-2A-144, Code of Alabama.
-2-
<PAGE> 17
13. Pursuant to Section 607.227 of the Florida General Corporation Act, and
Section 10-2A-144(b), Code of Alabama, as holder of all outstanding shares of
common stock of each of Stockton, Whatley, Davin & Company, BancBoston Mortgage
Corporation of New England, and Mortgage Corporation of the South, BancBoston
Mortgage Corporation has waived and does hereby waive the mailing of a copy of
the Plan of Merger.
14. The Plan of Merger will become effective on January 1, 1988, in the
states of Florida and Massachusetts. With respect to the state of Alabama, the
effective date is the date of the issuance of the certificate of merger, except
that for accounting and internal purposes only, the effective date is January 1,
1988.
15. The Plan of Merger provides for a cancellation of all of the issued and
outstanding shares of common stock of BancBoston Mortgage Corporation of New
England, Stockton, Whatley, Davin & Company, and Mortgage Corporation of the
South on the effective date of the merger.
16. BancBoston Mortgage Corporation agrees that it may be sued in the state
of Massachusetts for any prior obligation of BancBoston Mortgage Corporation of
New England and any obligation hereafter incurred by BancBoston Mortgage
Corporation, so long as any liability remains outstanding against BancBoston
Mortgage Corporation in the state of Massachusetts. BancBoston Mortgage
Corporation irrevocably appoints the Massachusetts state secretary as its agent
to accept service of process in any action for enforcement of any such
obligation, including taxes.
-3-
<PAGE> 18
17. BancBoston Mortgage Corporation agrees that it may be served with
process in the state of Alabama in any proceeding for the enforcement of any
obligation of Mortgage Corporation of the South. BancBoston Mortgage Corporation
irrevocably appoints the secretary of state of Alabama as its agent to accept
service of process in any such proceeding.
18. The undersigned, being respectively the President and the Secretary of
BancBoston Mortgage Corporation, state under penalty of perjury that the Plan of
Merger has been adopted by the directors of BancBoston Mortgage Corporation and
that at the date of such adoption of the Plan of Merger, BancBoston Mortgage
Corporation owned one hundred percent of the outstanding shares of common stock
of each of Stockton, Whatley, Davin & Company, BancBoston Mortgage Corporation
of New England, and Mortgage Corporation of the South.
BANCBOSTON MORTGAGE CORPORATION
By: /s/ Joe K. Pickett
------------------------------------
Joe K. Pickett, President
Attest:/s/ Thomas H. Fish
--------------------------------
Thomas H. Fish, Secretary
(Corporate Seal)
[BancBoston Mortgage Corporation
Corporate Seal]
-4-
<PAGE> 19
STATE OF FLORIDA
COUNTY OF DUVAL
The foregoing instrument was acknowledged before me this 21st day of
December, 1987, by Joe K. Pickett, and Thomas H. Fish, the President and
Secretary, respectively, of BancBoston Mortgage Corporation, a Florida
corporation, on behalf of said corporation.
/s/????????????
-------------------------------------
Notary Public, State of Florida
at Large
My commission expires:_______
-5-
<PAGE> 20
CERTIFICATE OF OWNERSHIP
and
ARTICLES OF MERGER
of
RIHT MORTGAGE CORPORATION
and
RIHT MORTGAGE SERVICE CORPORATION
with and into
BANCBOSTON MORTGAGE CORPORATION
1. BancBoston Mortgage Corporation, a Florida corporation, RIHT Mortgage
Corporation, a Delaware corporation and RIHT Mortgage Service Corporation, a
Delaware corporation, the undersigned corporations, each being validly and
legally formed under the laws of the respective states designated above, have
adopted a Plan of Merger.
2. The names of the constituent corporations are BancBoston Mortgage
Corporation, having its principal place of business at 7301 Baymeadows Way,
Jacksonville, Duval County, Florida 32216, RIHT Mortgage Corporation, having its
principal place of business at 11121 Carmel Commons Boulevard, Charlotte,
Mecklenburg County, North Carolina 28211, and with its principal place of
business in Delaware 1209 Orange Street, Wilmington, New Castle County, Delaware
19801, and RIHT Mortgage Service Corporation, having its principal place of
business at 11121 Carmel Commons Boulevard, Charlotte, Mecklenburg County, North
<PAGE> 21
Carolina 28211, and with its principal place of business in Delaware at 1209
Orange Street, Wilmington, New Castle County, Delaware 19801.
3. The name of the surviving corporation to this merger is BancBoston
Mortgage Corporation.
4. The total number of outstanding shares of common stock of RIHT Mortgage
Corporation is 100,000 shares, all being Class A Shares. BancBoston Mortgage
Corporation owns one hundred percent (100%) of such shares. There are no Class B
Shares outstanding.
5. The total number of outstanding shares of common stock of RIHT Mortgage
Service Corporation is 100,000 shares, all being Class A shares. BancBoston
Mortgage Corporation owns one hundred percent (100%) of such shares. There are
no Class B Shares outstanding.
6. No changes in the Articles of Incorporation of the surviving
corporation, BancBoston Mortgage Corporation, will be made.
7. The Plan of Merger was unanimously approved and adopted by the Board of
Directors of BancBoston Mortgage Corporation on April 26, 1988, without a vote
of the stockholders of BancBoston Mortgage Corporation, pursuant to Section
607.227(1), Florida Statutes. A copy of the resolution adopting the Plan of
Merger is attached hereto as Exhibit A and by this reference made a part hereof.
<PAGE> 22
8. The Plan of Merger was unanimously approved and adopted by the Board
of Directors of RIHT Mortgage Corporation on June 1, 1988, without a vote of the
stockholders of RIHT Mortgage Corporation, pursuant to Title 8, Section 253,
Delaware Statutes.
9. The Plan of Merger was unanimously approved and adopted by the Board
of Directors of RIHT Mortgage Service Corporation on June 1, 1988, without a
vote of the stockholders of RIHT Mortgage Service Corporation, pursuant to Title
8, Section 253, Delaware Statutes.
10. Pursuant to Section 607.227 of the Florida General Corporation Act,
and Section 253, Code of Delaware, as holder of all outstanding shares of common
stock of each of RIHT Mortgage Corporation and RIHT Mortgage Service
Corporation, BancBoston Mortgage Corporation has waived and does hereby waive
the mailing of a copy of the Plan of Merger.
11. The Plan of Merger will become effective on the date of filing of
Articles of Merger with the Secretaries of State of the states of Delaware and
Florida.
12. The Plan of Merger provides for a cancellation of all of the issued
and outstanding shares of common stock of RIHT Mortgage Corporation and RIHT
Mortgage Service Corporation on the effective date of the merger.
13. The Plan of Merger will be on file at the principal place of
business of the surviving corporations, as set forth in paragraph 2 of these
Articles. A copy of the Plan of Merger will
<PAGE> 23
be furnished by the surviving corporation to any stockholder of any constituent
corporation, upon request without cost.
14. BancBoston Mortgage Corporation agrees that it may be sued in the State
of Delaware for any proceeding for enforcement of any obligation of RIHT
Mortgage Corporation, as well as for enforcement of any obligation of BancBoston
Mortgage Corporation arising from the merger, including any suit or other
proceeding to enforce the right of any stockholders as determined in appraisal
proceedings pursuant to the provisions of Section 262 of Title 8 Delaware
Statutes. BancBoston Mortgage Corporation irrevocably appoints the Delaware
Secretary of State as its agent to accept service of process in any such suit or
other proceedings for enforcement of any such obligation, including taxes, a
copy of any such notice or process shall be mailed to BancBoston Mortgage
Corporation, 7301 Baymeadows Way, Jacksonsville, Duval County, Florida 32216.
15. BancBoston Mortgage Corporation agrees that it may be sued in the State
of Delaware for any prior proceeding for enforcement of any obligation of RIHT
Mortgage Service Corporation, as well as for enforcement of any obligation of
BancBoston Mortgage Corporation arising from the merger, including any suit or
other proceeding to enforce the right of any stockholders as determined in
appraisal proceedings pursuant to the provisions of Section 262 of Title 8
Delaware Statutes. BancBoston Mortgage Corporation irrevocably appoints the
Delaware
<PAGE> 24
Secretary of State as its agent to accept service of process in any such suit or
other proceedings for enforcement of any such obligation, including taxes, a
copy of any such notice or process shall be mailed to BancBoston Mortgage
Corporation, 7301 Baymeadows Way, Jacksonville, Duval County, Florida 32216.
<PAGE> 25
16. The undersigned, being respectively the Executive Vice President and
the Assistant Secretary of BancBoston Mortgage Corporation, state under penalty
of perjury that the foregoing facts are true and correct.
BANCBOSTON MORTGAGE CORPORATION
By: /s/ Thomas H. Fish
------------------------
Executive Vice President
Attest: /s/ J. Gregory Fagan
---------------------
Assistant Secretary
(Corporate Seal)
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
-------------------
The foregoing instrument was acknowledged before me this 1st day of June,
1988, by Thomas H. Fish and J. Gregory Fagan, the Executive Vice President and
Assistant Secretary, respectively, of BancBoston Mortgage Corporation, a Florida
corporation, on behalf of said corporation.
/s/ Douglas A. Bacon
-------------------------------
Notary Public, State and County
aforesaid
My commission expires: 6/29/90
--------
(Notarial Seal)
<PAGE> 26
EXHIBIT A
---------
WHEREAS, this Company's parent, the First National Bank of Boston, has
advised this Company of its intent to acquire and thereafter transfer to this
Company one hundred percent of the issued and outstanding shares of common stock
of each of RIHT Mortgage Corporation ("RMC") and RIHT Mortgage Service
Corporation ("RMSC");
WHEREAS, the combination of this Company, RMC and RMSC would generate
economies of scale and administrative efficiency which would enable all of said
companies to operate and compete more effectively; and
WHEREAS, there has been presented to this Board of Directors a proposed
plan of merger (the "Plan") of RMC and RMSC with an into this Company.
NOW, THEREFORE, BE IT RESOLVED, as follows:
1. That the Plan providing for the merger of RMC and RMSC with and into
this Company, on the terms and conditions set forth in the Plan, is approved and
adopted, contingent upon this Company acquiring one hundred percent of the
issued and outstanding shares of common stock of each of RMC and RMSC. A copy of
said Plan is attached hereto and by this reference made a part of this
resolution.
2. That, following the acquisition of such shares, the appropriate officers
of this Company are authorized to execute said Plan of Merger and thereafter,
with the advice of legal counsel, are directed to take any and all actions, and
to execute and file any and all documents, required in connection with the
proposed merger including, but without limitation, the filing of articles of
merger with the states of Florida and Delaware.
<PAGE> 27
CERTIFICATE AS TO AMENDMENT OF
ARTICLES OF INCORPORATION OF
BANCBOSTON MORTGAGE CORPORATION
We, Hugh R. Harris and Robert J. Jacobs, certify that we are the President
and Secretary, respectively, of BancBoston Mortgage Corporation, a Florida
corporation. We further certify that the following resolution relating to the
amendment of the Articles of Incorporation of the corporation was unanimously
approved and adopted by the shareholder of the corporation by consent on April
16, 1996, and was unanimously approved and adopted by the directors of the
corporation at a special meeting of the directors duly called and held on April
16, 1996:
BE IT RESOLVED, that, effective May 1, 1996, Articles I of the Articles of
Incorporation of this corporation is amended to read as follows:
Article I.
"The name of the corporation shall be HomeSide Lending, Inc."
IN WITNESS WHEREOF, we have executed this certificate as President and
Secretary, respectively, of BancBoston Mortgage Corporation, a Florida
corporation, and have caused the same to be scaled with the corporate seal this
16th day of April, 1996
/s/ Hugh R. Harris
--------------------------------------------------------------
Hugh R. Harris, President of BancBoston Mortgage Corporation
/s/ Robert J. Jacobs
--------------------------------------------------------------
Robert J. Jacobs, Secretary of BancBoston Mortgage Corporation
<PAGE> 28
State of Florida)
Country of Duval)
IN HEREBY CERTIFY that on this day before me, an officer duly authorized in
the State of County aforesaid to take acknowledgments, personally appeared Hugh
R. Harris and Robert J. Jacobs to me known to be the persons described in and
who executed the foregoing certificates as President and Secretary,
respectively, of BancBoston Mortgage Corporation, the corporation named therein,
and personally acknowledged to and before me that they executed the same as the
act and deed of said corporation.
WITNESS my hand and official seal in said County and State this 16th day of
April, 1996.
Julian M. Harden
----------------------------------------------
Notary Public, State and County aforesaid
My commission expires:
(Notarial Seal) [Julian M. Harden
MY COMMISSION #CC 240268
Expires: November 3, 1996
Bonded Thru Notary Public Underwriters]
<PAGE> 29
BANCBOSTON MORTGAGE CORPORATION
RESOLUTION
April 16, 1996
The undersigned, being all of the Directors of BancBoston Mortgage
Corporation, a Florida corporation, waive the requirements of notice of meeting
and unanimously consent to the adoption by the Board of Directors of such
corporation of the following resolution:
WHEREAS, the Board of Directors of the corporation has determined that it
is in the best interest of the corporation to amend its Articles of
Incorporation and thereby change its name from BancBoston Mortgage Corporation
to Homeside Lending, Inc. and has recommended this amendment to the sole
Shareholder of the Corporation;
BE IT RESOLVED, that effective May 1, 1996, Article I of the Articles of
Incorporation of this corporation is amended to read as follows:
Article I.
"The name of the corporation shall be HomeSide Lending, Inc."
IN WITNESS WHEREOF, the undersigned members of the Board of Directors of
the corporation have set their hands this 16th day of April, 1996.
/s/Joe K. Pickett
-----------------------------------
Joe K. Pickett
/s/Hugh R. Harris
-----------------------------------
Hugh R. Harris
/s/Robert J. Jacobs
-----------------------------------
Robert J. Jacobs
<PAGE> 30
UNANIMOUS CONSENT OF THE
SOLE STOCKHOLDER OF
BANCBOSTON MORTGAGE CORPORATION
APRIL 16, 1996
The undersigned HomeSide, Inc., being the sole Shareholder of BancBoston
Mortgage Corporation, a Florida corporation, hereby adopts the following
resolution by unanimous consent, in lieu of a meeting of Shareholders:
WHEREAS, the Board of Directors of BancBoston Mortgage Corporation has
determined that it is in the best interest of BancBoston Mortgage
Corporation to amend its Articles of Incorporation to change its name from
BancBoston Mortgage Corporation to HomeSide Lending, Inc. and has
recommended this amendment to the Shareholder;
BE IT RESOLVED, that effective May 1, 1996, Article I of the Articles
of Incorporation of this corporation is amended to read as follows:
Article I.
"The name of the corporation shall be HomeSide Lending, Inc."
IN WITNESS WHEREOF, the undersigned has executed this Unanimous Written
Consent as of this 16th day of April, 1996.
/s/Joe K. Pickett
-----------------------------
Joe K. Pickett, Chairman and
Chief Executive Officer of HomeSide, Inc.
<PAGE> 31
ARTICLES AND PLAN OF MERGER
---------------------------
MERGER OF
SWD, INC., STOCKTON, WHATLEY, DAVIN & COMPANY,
BANCBOSTON MARKETING GROUP, INC., SWD MORTGAGE COMPANY,
TIDESFALL PROPERTIES, INC., C & M SERVICES, INC., and
MORTGAGE CORPORATION OF THE SOUTH,
with and into
HOMESIDE LENDING, INC.
HomeSide Lending, Inc., a Florida corporation ("Parent"), SWD, Inc., a
Florida corporation, Stockton, Whatley, Davin & Company, a Florida corporation,
BancBoston Marketing Group, Inc., a Florida corporation, SWD Mortgage Company, a
Florida corporation, Tidesfall Properties, Inc., a Florida corporation, C & M
Services, Inc., a Florida corporation, and Mortgage Corporation of the South, an
Alabama corporation (hereinafter referred to collectively as the
"Subsidiaries"), hereby adopt the following Articles and Plan of Merger, for the
purpose of merging the Subsidiaries with and into Parent.
ARTICLE I
CORPORATIONS INVOLVED IN MERGER
1. PARENT AND SURVIVING CORPORATION. HomeSide Lending, Inc., a
Florida corporation, which shall be the surviving corporation.
2. SUBSIDIARIES. The following wholly-owned subsidiaries of
Parent:
A. SWD, Inc., a Florida corporation;
B. Stockton, Whatley, Davin & Company, a Florida corporation;
C. BancBoston Marketing Group, Inc., a Florida corporation;
D. SWD Mortgage Company, a Florida corporation;
E. Tidesfall Properties, Inc., a Florida corporation;
<PAGE> 32
F. C & M Services, Inc., a Florida corporation; and
G. Mortgage Corporation of the South, an Alabama corporation.
ARTICLE II
APPROVAL OF PLAN OF MERGER
The Plan of Merger was duly adopted and approved by the Board of Directors
of Parent pursuant to Section 607.1104 of the Florida Business Corporation Act
(the "Florida Act") and Section 10-2B-11.04 of the Alabama Business Corporation
Act (the "Alabama Act") by Written consent of the Board of Directors dated May
9, 1996. Shareholder approval of the Plan of Merger is not required by the
shareholders of Parent or by the shareholders of any of the Subsidiaries
pursuant to Section 607.1104 of the Florida Act, and Section 10-2B-11.04 of the
Alabama Act.
ARTICLE III
PLAN OF MERGER
1. MERGER. At and as of the Effective Date (as defined below), subject to
the terms of this Plan of Merger, the Subsidiaries will merge with and into
Parent (the "Surviving Corporation"), whose name shall continue to be HomeSide
Lending, Inc.
2. EFFECTIVE DATE. The effective date of the merger shall be May 15, 1996
at 9:00 a.m.
3. APPROVAL. The Plan of Merger has been approved by the directors of
Parent in accordance with Section 607.1104 of the Florida Act, and Section
10-2B-11.04 of the Alabama Act by Written Consent of the Board of Directors
dated May 9, 1996. Parent, which is the sole shareholder of each of the
Subsidiaries, has waived the requirement of the mailing of the Plan of Merger.
<PAGE> 33
4. TRANSFER OF ASSETS. At and as of the Effective Date, the separate
existence of each of the Subsidiaries shall cease (except to the extent
expressly continued by the laws of the State of Florida or the State of
Alabama), and all the property, rights, privileges, contracts and franchises of
the Subsidiaries, of whatsoever nature and description, shall be transferred to,
vest in and devolve upon the Surviving Corporation without further act or deed.
5. ASSUMPTION OF LIABILITIES. At and as of the Effective Date, the
Surviving Corporation shall assume and be responsible for all of the liabilities
and obligations of the Subsidiaries.
6. ARTICLES OF INCORPORATION. The Articles of Incorporation of Parent, on
the Effective Date, shall continue in full force and effect as the Articles of
Incorporation of the Surviving Corporation following the merger.
7. BYLAWS. The Bylaws of Parent, on the Effective Date, shall remain and be
the Bylaws of the Surviving Corporation following the merger.
8. DIRECTORS AND OFFICERS. The directors and officers of Parent, on the
Effective Date, shall continue to be the directors and officers of the Surviving
Corporation, all of whom shall hold their directorships and offices until the
election and qualification of their respective successors or until their earlier
removal, resignation, or death.
9. CONVERSION OF SHARES. At and as of the Effective Date, each authorized
and issued share of the common stock of each of the Subsidiaries, by virtue of
the merger and without any action on the part of the holder thereof, shall be
automatically cancelled, and no merger consideration shall be issued with
respect thereto.
3
<PAGE> 34
10. NECESSARY INSTRUMENTS. At any time following the Effective Date, at
the request of the officers of the Surviving Corporation, the officers of any of
the Subsidiaries holding office immediately prior to the Effective Date of the
Merger shall execute such confirmatory deeds, assignments or other like
instruments as may be deemed necessary, appropriate, or helpful to the
Surviving Corporation to evidence the transfer and vesting of property, rights
and privileges from the Subsidiaries to the Surviving Corporation in connection
with this merger.
11. NECESSARY ACTS. To carry out this Plan of Merger, the President or
any Vice President, and the Secretary or any Assistant Secretary, of each of
the corporations, upon approval of this Plan of Merger, shall be vested with
full authority to do and perform each and every act or thing necessary or
proper to be done or performed to give effect to, and to consummate, this
Plan of Merger.
12. TERMINATION. At any time prior to the filing of these Articles and
Plan of Merger with the Department of State of the State of Florida or with the
Secretary of State of the State of Alabama, this Plan of Merger may be
terminated by the Board of Directors of Parent. Upon termination as provided
herein, this Plan of Merger shall be void and of no further effect, and there
shall be no liability by reason of this Plan of Merger or the termination hereof
on the part of Parent or Subsidiaries, or their directors, officers, employees,
agents or shareholders.
ARTICLE III
FILING OF ARTICLES OF INCORPORATION IN ALABAMA
The Articles of Incorporation of Mortgage Corporation of the South, an
Alabama corporation, are filed in Montgomery County, Alabama.
4
<PAGE> 35
IN WITNESS WHEREOF, the undersigned officers of Parent and Subsidiaries,
respectively, have executed these Articles and Plan of Merger pursuant to the
authority vested in them by the Board of Directors and shareholders,
respectively, of each corporation.
HOMESIDE LENDING, INC., a Florida corporation
By: /s/ Hugh R. Harris
-------------------------------------------
Hugh R. Harris
Its President
SWD, INC., a Florida corporation
By: /s/ Joe K. Pickett
-------------------------------------------
Joe K. Pickett
Its President
STOCKTON, WHATLEY, DAVIN & COMPANY,
a Florida corporation
By: /s/ Joe K. Pickett
-------------------------------------------
Joe K. Pickett
Its President
BANCBOSTON MARKETING GROUP, INC.,
a Florida corporation
By: /s/ Joe K. Pickett
-------------------------------------------
Joe K. Pickett
Its President
<PAGE> 36
SWD MORTGAGE COMPANY, a Florida
corporation
By: /s/ Joe K. Pickett
---------------------------
Joe K. Pickett
Its President
TIDESFALL PROPERTIES, INC., a Florida
corporation
By: /s/ Joe K. Pickett
---------------------------
Joe K. Pickett
Its President
C & M SERVICES, INC., a Florida corporation
By: /s/ Joe K. Pickett
---------------------------
Joe K. Pickett
Its President
MORTGAGE CORPORATION OF THE SOUTH,
an Alabama corporation
By: /s/ Joe K. Pickett
---------------------------
Joe K. Pickett
Its President
8
<PAGE> 37
STATE OF FLORIDA
COUNTY OF DUVAL
The foregoing instrument was acknowledged before me this 9th day of May,
1996, by Hugh R. Harris, as President of HomeSide Lending, Inc., a Florida
corporation, on behalf of the corporation. He is personally known to me or has
produced________________as identification and did not take an oath.
/s/ Barbara L. Verderane
---------------------------------------
Notary Public, State of Florida
Printed Barbara L. Verderane
-------------------------------
My Commission expires:
Commission No.:
[Notarial Seal]
STATE OF FLORIDA
COUNTY OF DUVAL
The foregoing instrument was acknowledged before me this 9th day of May,
1996, by Joe K. Pickett, as President of SWD, Inc., a Florida corporation,
Stockton, Whatley, Davin & Company, a Florida corporation, BancBoston Marketing
Group, Inc., a Florida corporation, SWD Mortgage Company, a Florida Corporation,
Tidesfall Properties, Inc., a Florida Corporation, C & M Services, Inc., a
Florida Corporation, and Mortgage Corporation of the South, an Alabama
corporation, on behalf of the corporations. He is personally known to me or has
produced_____________ as identification and did not take an oath.
/s/ Barbara L. Verderane
---------------------------------------
Notary Public, State of Florida
Printed Barbara L. Verderane
-------------------------------
My Commission expires:
Commission No.:
[Notarial Seal]
<PAGE> 38
ARTICLES OF MERGER
OF
BANCPLUS MORTGAGE CORP. AND
LAFC MERGER COMPANY
WITH AND INTO
HOMESIDE LENDING, INC.
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act (the "TBCA") and Section 607.1105 of the Florida Business
Corporation Act (the "FBCA"), the undersigned BancPLUS Mortgage Corp., a Texas
corporation ("BMC"), LAFC Merger Company, a Florida Corporation, and HomeSide
Lending, Inc., a Florida Corporation ("HomeSide" or the "Surviving
Corporation"), adopt the following Articles of Merger for the purpose of
effecting a merger (the "Merger") of BMC and LAFC with and into HomeSide in
accordance with the provisions of Article 5.01 of the TBCA and Section 607.1101
of the FBCA:
1. A Plan of Merger adopted in accordance with the provisions of Article
5.03 of the TBCA and Section 607.1103 of the FBCA providing for the
merger of BMC and LAFC with and into HomeSide, resulting in HomeSide
being the surviving corporation, is attached hereto as Exhibit A and
is hereby incorporated herein by reference (the "Plan of Merger").
2. Approval by the shareholder of HomeSide is not required pursuant to
Section 607.1103(7) of the FBCA.
3. As to each of BMC and LAFC, the approval of whose shareholders is
required, the number of outstanding shares of common stock are set
forth below:
Company Number of Shares Outstanding
------- ----------------------------
BMC 2,000
LAFC 1,000
4. As to each of BMC and LAFC, the approval of whose shareholders is
required, the number of shares voted for and against the Plan of Merger,
respectively, are set forth below:
Number of Shares Number of Share
---------------- ---------------
Company Voted For Voted Against
------- --------- -------------
BMC 2,000 -0-
LAFC 1,000 -0-
<PAGE> 39
5. The Plan of Merger was adopted by written consent of the sole
shareholder of each of BMC and LAFC and by written consent of the Board
of Directors of HomeSide on May 31, 1996.
6. The Plan of Merger and the performance of its terms were duly
authorized by all action required by the laws of the State of Florida
and the constituent documents of LAFC and HomeSide with respect to LAFC
and HomeSide and by the laws of the State of Texas and the constituent
document of BMC with respect to BMC.
IN WITNESS WHEREOF, the undersigned have, through their duly authorized
representatives, executed these Articles of Merger on this 31st day of May,
1996.
BANCPLUS MORTGAGE CORP.,
a Texas corporation
By: /s/ Francis G. Seabrook
------------------------------
Francis G. Seabrook, President
LAFC MERGER COMPANY,
a Florida corporation
By: /s/ Francis G. Seabrook
------------------------------
Francis G. Seabrook, President
HOMESIDE LENDING, INC.,
a Florida corporation
By: /s/ Hugh R. Harris
------------------------------
Hugh R. Harris, President
2
<PAGE> 40
EXHIBIT A
PLAN OF MERGER
This Plan of Merger, dated May 31, 1996, is to effect the merger of
BancPLUS Mortgage Corp., a Texas corporation ("BMC"), and LAFC Merger Company,
f/k/a Loan America Financial Corporation, a Florida corporation ("LAFC"), with
and into HomeSide Lending, Inc., a Florida corporation ("HomeSide" or "the
surviving corporation").
RECITALS
A. BMC is a Texas corporation which has 10,000 authorized shares of
common stock, par value $100.00 per share, of which 2,000 shares are currently
issued and outstanding. BMC's address is 9000 Southside Boulevard, Building
700, Jacksonville, Florida 32256, Attention: Karen S. Lugar.
B. LAFC is a Florida corporation which has 75,000 authorized shares of
common stock, par value $.10 per share, of which 1,000 shares are currently
issued and outstanding. LAFC's address is 9000 Southside Boulevard, Building
700, Jacksonville, Florida 32256, Attention: Karen S. Lugar.
C. HomeSide is a Florida corporation which has 10,000 authorized shares
of common stock, par value $1.00 per share, of which 100 shares are currently
issued and outstanding. HomeSide's address is 7301 Baymeadows Way,
Jacksonville, Florida 32256, Attention: Robert C. Jacobs.
D. The Board of Directors of each of HomeSide, BMC and LAFC deem it
desirable and in the best interests of the corporations and their respective
shareholders that BMC and LAFC be merged with and into HomeSide.
NOW, THEREFORE, BMC and LAFC shall be merged with and into HomeSide
upon the following terms:
1. MERGER. BMC and LAFC shall merge with and into HomeSide, with
HomeSide surviving the merger, pursuant to the provisions of the Texas Business
Corporation Act and the Florida Business Corporation Act (the "Merger").
2. EFFECTIVE TIME AND DATE OF MERGER. The merger shall become
effective upon the filing of the Articles of Merger with respect thereto with
the States of Texas and Florida and the issuance of any Certificates of Merger,
as necessary, in accordance with the respective laws of those states, which
time and date are herein referred to as the "Effective Time."
3. EFFECTS OF MERGER. At the Effective Time, the separate corporate
existences of BMC and LAFC shall cease and HomeSide shall become the owner,
without other transfer, of all the rights and property of BMC and LAFC, and
HomeSide shall become subject to all the debts and liabilities of BMC and LAFC
in the same manner as if HomeSide had itself incurred them.
<PAGE> 41
4. SURVIVING CORPORATION. HomeSide shall be the surviving corporation and
shall be governed by the laws of the State of Florida. Its registered office and
principal office shall be as such is currently reflected for HomeSide in the
office of the Department of State of the State of Florida.
5. ARTICLES OF INCORPORATION. The Articles of Incorporation of HomeSide as
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the surviving corporation until the same shall be altered or
amended.
6. BYLAWS. The Bylaws of HomeSide, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the surviving corporation until the same
shall be altered, amended, or repealed, or until new bylaws are adopted as
provided therein.
7. DIRECTORS. The directors of HomeSide immediately prior to the Effective
Time shall constitute the board of directors of the surviving corporation.
8. OFFICERS. The officers of HomeSide immediately prior to the Effective
Time shall be the officers of the surviving corporation.
9. Conversion of Shares.
---------------------
a. Each share of HomeSide common stock, par value $1.00 share,
that is issued and outstanding immediately prior to the Effective Time will
continue to be one share of common stock, par value $1.00 per share, of the
surviving corporation.
b. Each share of BMC common stock, par value $100.00 per share,
that is issued and outstanding immediately prior to the Effective Time shall, by
virtue of the merger and without any action on the part of the holders
thereof, no longer be outstanding and shall be cancelled. No consideration of
any kind will be given to the holder of BMC stock.
c. Each share of each class of LAFC stock, par value $.10 per
share, that is issued and outstanding immediately prior to the Effective Time
shall, by virtue of the merger and without any action on the part of the holders
thereof, no longer be outstanding and shall be cancelled. No consideration of
any kind will be given to the holder of LAFC stock.
10. TERMINATION. The directors of any of HomeSide, BMC or LAFC may, in
their discretion, abandon this merger without further action or approval of the
shareholders of HomeSide, BMC or LAFC, as the case may be, at any time before
the merger has been complete.
12. EXTENDED MEANINGS. Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.
2
<PAGE> 42
IN WITNESS WHEREOF, HomeSide, BMC and LAFC, by and through their
authorized representatives, have executed this Plan of Merger on the day first
written above.
HOMESIDE LENDING, INC., a Florida
corporation
By: /s/ Hugh R. Harris
------------------------------
Hugh R. Harris, President
BANCPLUS MORTGAGE CORP., a Texas
corporation
By: /s/ Francis G. Seabrook
------------------------------
Francis G. Seabrook, President
LAFC MERGER COMPANY, a Florida
corporation
By: /s/ Francis G. Seabrook
------------------------------
Francis G. Seabrook, President
3
<PAGE> 1
ANNEX II
BY-LAWS
OF
HOMESIDE LENDING, INC.
ARTICLE I.
Office. Seal.
-------------
ss.1. The principal office of the corporation in Florida shall be located
in the City of Jacksonville. The corporation may have such additional offices as
the Board of Directors from time to time may determine.
ss.2. The corporate seal of the corporation shall have inscribed thereon
the name of the corporation, the year in which incorporated and the words
"Florida - Corporate - Seal".
ARTICLE II.
Stockholders.
-------------
ss.1. All meetings of the stockholders shall be held at the principal
office of the corporation in Florida, or at such other place, either within or
without the State of Florida, as from time to time may be determined by the
Board of Directors and specified in the notice of such meeting.
ss.2. The annual meeting of the stockholders shall be held on the third
Tuesday in March of each year at eleven o'clock in the morning of that day, if
not a legal holiday, and if a legal holiday, then at the same hour on the next
business day following, beginning with the year 1987. At such meeting, the
stockholders shall elect the entire Board of Directors and shall transact such
other business as properly may come before the meeting.
ss.3. Special meetings of stockholders may be called at any time by the
President or by a majority of the Directors. It shall also be the duty of the
President to call such meetings whenever requested in writing so to do by the
record holders of more than twenty percent (20%) of the stock issued and
outstanding and entitled to vote, which request shall state the objects of the
proposed meeting. Business transacted at all special meetings shall be confined
to the objects stated in the notice.
ss.4. The voting at all meetings of stockholders shall be by voice vote,
but any qualified voter may demand a stock vote, whereupon such stock vote shall
be taken by written ballot, each of which shall state the name of the
stockholder voting and the number of shares voted, and if such ballot be cast by
a proxy, it shall also state the name of such proxy.
<PAGE> 2
ss.5. A majority in number of shares of the capital stock issued and
outstanding and entitled to vote, represented by the holders in person or by
proxy, shall be requisite at to constitute a quorum for the election of
Directors or the transaction of other all meetings business. If, however, such
majority shall not be present or represented at any such meeting, the
stockholders entitled to vote thereat, present in person or by proxy, shall have
power to adjourn the meeting from time to time without notice other than
announcement at the meeting, until the requisite amount of voting stock shall be
present. At any such adjourned meeting at which the requisite amount of voting
stock shall be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
ss.6. At any meeting of the stockholders at which a quorum is present, the
affirmative vote of the holders of a majority of the stock entitled to vote
thereat, present in person or by proxy, shall be had on any matter coming before
such meeting in order to constitute such action the valid act of the
stockholders thereon, unless otherwise provided by law, except for the election
of Directors who shall be elected by a plurality vote.
ss.7. At each meeting of the stockholders, every stockholder of record
shall be entitled to one vote for every share of common stock standing in his
name on the books of the corporation on the record date fixed as hereafter
provided, or if no such record date was fixed with respect to such meeting, on
the day of the meeting. Every stockholder may vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder and bearing
a date not more than eleven (11) months prior to the date of the meeting, unless
the authority granted by such instrument shall have terminated by its own terms
prior to the date of such meeting.
ss.8. The Board of Directors may close the stock transfer books of the
corporation for a period not exceeding forty (40), nor less than ten (10) days
preceding the date of any meeting of stockholders, or the date for payment of
any dividend, or the date for the allotment of rights; or, in lieu of closing
the stock transfer books, the Board of Directors may fix in advance a date not
exceeding forty (40), nor less than ten (10) days prior to the date of holding
any meeting of stockholders, or the date for the payment of any dividend, or the
date for allotment of rights, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, and in such case only stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, as the case
may be.
ss.9. Notice of the time and place of the annual meeting of stockholders
and notice of the time, place and purpose of each special meeting of the
stockholders shall be given at least ten (10) and not more than sixty (60) days
before the date set for such meeting to each stockholder of record having the
right and entitled to vote at such meeting.
ss.10. No notice of any stockholders meeting shall at any time be required
to be
-2-
<PAGE> 3
published in any newspaper. However, the Board of Directors may, if it so
desires, cause notice of any stockholders' meeting to be published in such
newspapers as the Board may designate.
ss.11. Anything in these By-Laws to the contrary notwithstanding, any
action of the stockholders may be taken without a meeting if consent in writing
setting forth the action so taken shall be signed by all of the persons who
would be entitled to vote upon Such ,action at a meeting and filed with the
Secretary of the corporation as part of the corporate records. Such consent
shall have the same force and effect as a unanimous vote of the stockholders and
may be stated as such in any certificate or document.
ARTICLE III.
Board of Directors.
-------------------
ss.1. The management of all of the affairs, business and property of the
corporation shall be vested in its Board of Directors. The number of Directors
of the corporation shall be nine (9), but said number may be changed within the
maximum and minimum limits provided by the Articles of Incorporation, by
amendment of this By-Law. The Directors shall be elected at the Annual Meeting
of Stockholders, except as otherwise provided for filling vacancies. Each
Director shall hold office until the Annual meeting of Stockholders held next
after his election or other manner of appointment, and until his successor shall
have been elected and shall qualify or until his death, resignation or removal.
Directors need not be stockholders.
ss.2. The Annual Meeting of the Board of Directors shall be held in each
year immediately after and at the same place as the Annual Meeting of
Stockholders. No notice of the Annual Meeting of the Board of Directors need be
given.
ss.3. Regular meetings of the Board of Directors may be held at such places
and at such times as the Board from time to time shall determine by resolution.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting which otherwise would be held
on that day shall be held at the same hour on the next succeeding business day
not a legal holiday. No notice of regular meetings of the Board of Directors
need be given.
ss.4. Special meetings of the Board of Directors shall be held whenever
called by the President or by a majority of the Directors. Notice of each
special meeting of the Board of Directors shall be given to each Director at
least two (2) days before the day on which the special meeting is to be held.
Every such notice shall state the time and place of the meeting and the purpose
thereof. The business transacted at such special meeting shall be confined to
the purposes stated in the notice.
-3-
<PAGE> 4
ss.5. At least a majority of the Directors shall be present at each meeting
of the Board of Directors in order to constitute a quorum for the transaction of
business. Members of the Board of Directors shall be deemed present at a meeting
of such Board of Directors if a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other is used. The affirmative vote of a majority of the Directors present
at any meeting of the Board of Directors, at which a quorum is present, shall be
had upon any matter coming before said Board in order to constitute such action
the valid action of the Board thereon. In the absence of a quorum, any two of
the Directors present may adjourn any meeting from time to time until a quorum
is had. Notice of any such adjourned meeting need not be given.
ss.6. The Board of Directors may hold its meetings at such places within or
without the State of Florida as it from time to time may determine or as shall
be specified or fixed in the respective notice or waivers of notice thereof.
ss. 7. All vacancies in the Board of Directors, whether caused by death,
resignation, removal or otherwise, shall be filled by a majority vote of the
remaining Directors.
ss.8. Any Director may resign at any time by giving written notice to the
President or to the Secretary. The resignation of any Director shall take effect
at the time specified in such notice; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make if effective.
ss.9. Any Director may be removed at any time, with or without cause, by a
vote of the holders of a majority of the stock present, in person or by proxy,
at any special meeting of the stockholders called for that purpose.
ss.10. The Directors may appoint from their number an Executive Committee
consisting of the President and one or more members of the Board. The Executive
Committee may hold meetings at such place as may be agreed upon by the members
thereof. The President or one-third (1/3) of the members of the Executive
Committee may call a meeting upon two (2) days' notice, given in person or by
mail, telegram or telephone. Any meeting of the Executive Committee shall be a
legal meeting without notice if all members shall be present thereat or if
written waiver thereof shall have been given either before, at, or after such
meeting. A majority of the Executive Committee shall constitute a quorum and in
any case the affirmative vote of a majority of the entire Executive Committee
shall be necessary to adopt any resolution, provided, however, that if the
Executive Committee shall consist of only two members, a unanimous vote of the
entire Executive Committee shall be required in all cases. The Executive
Committee may make its own rules of procedure but shall have regular minutes of
its proceedings and shall report the same to the Board of Directors at the next
Directors' meeting held thereafter.
During the intervals between meetings of the Board of Directors, the
Executive committee, if appointed hereunder, may have and shall exercise all the
powers of the Board of Directors in
-4-
<PAGE> 5
the management of the affairs, business and property of the corporation, in such
manner as the Executive Committee shall deem for the best interests of the
corporation in all cases in which specific directions shall not have been given
by the Board of Directors. The Executive Committee shall not have power to fill
vacancies in said Committee or in the Board of Directors or to make or amend the
By-Laws of the corporation.
ss.11. The Board of Directors may adopt such rules and regulations for
the conduct of their meetings, the order of their business, and the management
of the property, affairs and business of the corporation as they may deem
proper, not inconsistent with the laws of the State of Florida or these By-Laws.
ss.12. The Chairman of the Board of Directors may, in his sole discretion,
designate one or more Directors to have and to hold executive and line
authority.
ARTICLE IV.
Standing Committees.
--------------------
The President shall have the authority to establish one or more Standing
Committee(s). Each Standing Committee shall have a Chairperson and one or more
members, all or whom shall be appointed by the President. A Standing Committee
shall meet on a regular basis or upon a meeting called by the Chairperson or by
consent; minutes of the meetings shall be made and kept; actions shall be valid
if approved by a majority vote. The Chairperson and members of a Standing
Committee shall serve until a replacement is named by the President.
ARTICLE V.
Officers of the Corporation.
----------------------------
ss.1. The Officers of the Corporation shall be a President, such number of
Vice Presidents as the Board of Directors from time to time may determine, a
Secretary, a Treasurer, and such Assistant Secretaries and Assistant Treasurers
and such other subordinate officers as the Board from time to time may elect or
appoint. The Board of Directors may also elect a Chairman of the Board of
Directors and a Vice Chairman of the Board of Directors. All officers elected or
appointed by the Board shall hold their respective offices only at and during
the pleasure of the Board of Directors, unless a written employment contract or
agreement providing otherwise, shall be entered into between the corporation and
any such officer pursuant to authorization of the Board of Directors.
In addition to the foregoing authority of the Board of Directors to elect
or appoint Officers of the Corporation, the following designated Persons shall
have the authorities to confer corporate titles set opposite their names:
-5-
<PAGE> 6
1. Appropriate Division Executive
(i.e., Executive Vice President) All titles through Vice President
2. Chairman, or President All titles through Senior Vice
President
3. Executive Committee Executive Vice President
ss.2. Any person may hold two or more offices, except that the President
shall not also be the Secretary or Assistant Secretary, but in no case shall one
person sign a single instrument of any kind in more than one capacity. None of
the Officers, except the President need be a member of the Board of Directors.
ss.3. The Chairman of the Board of Directors (sometimes herein referred to
as the Chairman of the Board), if one shall be elected, shall preside at the
meetings of the stockholders and of the Board of Directors and, in the absence
of the Chairman of the Executive Committee, at the meetings of the Executive
Committee, and, subject to the authority of the Board of Directors, shall
exercise general supervision and control of the company's affairs. The Board may
also from time to time appoint one or more Vice Chairmen of the Board of
Directors who shall perform such duties as may be designated by the President or
the Board.
ss.4. The President shall be the Chief Executive Officer of the
Corporation. He shall have active and general management of the business of the
Corporation, and shall see that all orders and resolutions of the Board are
carried into effect. He shall be ex-officio a member of all standing committees,
and shall have the general powers and duties of supervision and management
usually vested in the Office of President of a corporation. In the absence of
the Chairman and Vice Chairman of the Board, the President shall also perform
the above-mentioned duties of the Chairman of the Board. The President also
shall have the general power to discharge all subordinate agents and employees.
ss.5. The Vice President or Vice Presidents, if such shall be elected,
shall perform such duties as may be assigned by the Board of Directors or by the
President.
ss.6. The Secretary shall keep the minutes of the meetings of the Board of
Directors and the minutes of the meetings of the stockholders. He shall attend
to the giving and serving of all notices of the corporation. He shall have
charge of the stock certificate books and such other books and papers as the
Board may direct, and shall Perform all the duties incidental to his office.
ss.7. The Treasurer shall have the care and custody of all of the funds and
securities of the corporation and shall deposit the same in the name of the
corporation in such banks or depositories as the Board of Directors may from
time to time select.
-6-
<PAGE> 7
ss.8. The other officers of the corporation shall perform such duties as
may be assigned by the Board of Directors or by the President.
ss.9. The Board of Directors, by resolution, may require any or all of the
officers of the corporation to give bonds in favor of the corporation, with
sufficient surety or sureties, and in such amounts as the Board of Directors may
fix, conditioned for the faithful performance of the duties of their respective
offices.
ARTICLE VI.
Stock.
------
ss.1. The certificates for shares of the capital stock of the corporation
shall be in such form as shall be approved by the Board of Directors. The shares
of stock of the corporation shall be transferrable only on the books of the
corporation by the holder thereof in person or by his attorney, upon surrender
for cancellation of the certificate or certificates, with an assignment and
power of transfer endorsed thereon or attached thereto duly executed, and with
such proof of authenticity of the signature as the corporation or its agents
reasonably may require.
ss.2. All stock certificates shall be signed by the President or a Vice
President, and the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, and shall bear the seal of the company, which seal may be
facsimile, engraved or printed. Where such certificate is signed by a transfer
agent or an assistant transfer agent, other than the corporation itself, or by a
transfer clerk acting on behalf of the corporation and a registrar, the
signature of any of the officers named above may be facsimile. In case any
officer who signed, or whose facsimile signature has been used on any
certificate, shall cease to be such officer for any reason before the
certificate has been delivered by the corporation, such certificate may
nevertheless be issued and delivered by the corporation as though the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer of the corporation.
ss.3. No certificate for shares of stock in the corporation shall be issued
in place of any certificate alleged to have been lost, stolen or destroyed,
except upon production to the corporation or its agents of satisfactory evidence
of such loss, theft or destruction, and upon delivery to the corporation of a
bond of indemnity in such amount and upon such terms and secured by such
security as the Board of Directors in its discretion may require.
-7-
<PAGE> 8
ARTICLE VII.
Execution of Contracts - Bank Accounts - Fiscal Year.
-----------------------------------------------------
ss.1. All checks, drafts, notes, bonds, contracts and other instruments
shall be signed by such officers as may be designated from time to time by
resolution of the Board of Directors.
ss.2. All funds of the corporation shall be deposited from time to time to
the credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may from time to time designate, or as
may be designated by any officer or officers of the corporation to whom such
power may be delegated by the Board of Directors, and for the purpose of such
deposit any of the officers of the corporation may endorse, assign and deliver
checks, drafts and other orders for the payment of money which are payable to
the order of the corporation.
ss.3. The fiscal year of the corporation shall be the twelve month period
ending December 31.
ss.4. After the close of each fiscal year the corporation shall make an
annual report to its stockholders with respect to the operations of such year,
which report shall contain a balance sheet as of the close of such year and also
a statement of the profit and loss and surplus accounts for the year, certified
by independent public accountants, in such form as may be customary for such
reports.
ARTICLE VIII.
Notices.
--------
ss.1. Whenever the provisions of a statute, or the Articles of
Incorporation or any of these By-Laws require or permit notice to be given to
any Director, officer or stockholder, it shall not be construed to require
personal notice, but any such notice may be given in writing by depositing the
same in a post office or letter box in a post-paid sealed wrapper, or by
delivering the same to a telegraph company for transmission by wire, the cost
thereof being prepaid, in either case addressed as the same appears on the books
of the corporation, and the time when the same shall be so mailed or delivered
to the telegraph company shall be deemed to be the time of the giving of such
notice.
ss.2. Any stockholder or Director may waive in writing or by telegraph any
notice required or permitted to be given under any provisions of any statute or
of the Articles of Incorporation or of these By-Laws, either before, at, or
after the meeting or other event of which notice is so provided. All
stockholders or Directors present at any meeting shall be deemed to have waived
any and all notice thereof.
-8-
<PAGE> 9
ARTICLE IX.
Indemnification.
----------------
ss.1. The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a Director or officer of the corporation or
served, at the written request of the President of the corporation, as a
Director or officer of another corporation (all of whom are hereinafter in this
Article referred to in the aggregate as "indemnified persons" and in the
singular as an "indemnified person") against expenses (including attorneys' fees
except as otherwise stated in Section 3 of this Article), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by a judgement, order, settlement, adjudication or
upon a plea of nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
ss.2. The corporation shall indemnify any indemnified person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgement in its favor against expenses (including attorneys' fees except as
otherwise stated in Section 3 of this Article) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
3. The corporation will be entitled to participate at its own expense in
the defense and, if it so elects, to assume the defense of any claim, action,
suit or proceeding. If the corporation elects to assume the defense, such
defense shall be conducted by counsel of good standing, chosen by it. In the
event the corporation elects to assume the defense of any such claim, action,
suit or proceeding and retain such counsel, the indemnified persons shall bear
the fees and expense of any additional counsel retained by them, unless there
are conflicting
-9-
<PAGE> 10
interests as between the corporation and the indemnified persons that are for
valid reasons objected to in writing by the indemnified persons.
ss.4. In discharging his duty to the corporation, an indemnified person,
when acting in good faith, may rely upon financial statements of the corporation
represented to him to be correct by the officer of the corporation having charge
of its books of accounts, or stated in a written report by an independent public
or certified public accountant or firm of such accountants fairly to reflect the
financial condition of such corporation.
ss.5. Any indemnification under this Article IX (unless ordered by a court)
shall be made only as authorized in the specific case upon a determination (1)
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (2) if such quorum
is not obtainable, or, even if obtainable, when a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion that the
indemnified person has met the standards of conduct set forth in this Article IX
or (3) by the stockholder or stockholders.
ss.6. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in Section 5 of this Article IX upon receipt of an undertaking
by or on behalf of the indemnified person to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article IX.
ss.7. The indemnification provided by this Article IX shall not be deemed
exclusive of any other rights to which any indemnified person may be entitled
under any agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ss.8. The Board of Directors shall have power on behalf of the corporation
to grant indemnification to any person other than an indemnified person to such
extent as the Board in its discretion may from time to time and at any time
determine, but in no event to exceed the indemnification provided by this
Article IX.
ss.9. If any part of this Article IX shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of the
remaining parts shall not be affected.
- 10-
<PAGE> 11
ARTICLE X.
Amendment of By-Laws.
---------------------
The Board of Directors, by a vote of a majority of those present at any
meeting at which a quorum is present, may alter, amend or repeal these By-Laws
or any of this, and any By-Law or alteration, amendment or repeal so made may be
further amended, altered, or repealed by the Board of Directors as herein
provided, or by the stockholders entitled to vote at any regular or special
meeting of the stockholders.
-11-
<PAGE> 1
Exhibit 4.1
HOMESIDE LENDING, INC.,
Issuer
to
THE BANK OF NEW YORK, Trustee
====================
---------------
INDENTURE
---------------
Dated as of , 1997
Debt Securities
<PAGE> 2
Reconciliation and tie between
Trust Indenture Act of 1939 (the "Trust Indenture Act")
and Indenture
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Section 316(a) (last sentence) . . . . . . . . . . . . . . . . . . 1.1
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Amounts . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . 2
Authorized Newspaper . . . . . . . . . . . . . . . . . . . . . . 2
Authorized Officer . . . . . . . . . . . . . . . . . . . . . . . 3
Bearer Security . . . . . . . . . . . . . . . . . . . . . . . . 3
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 3
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day, . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request" and "Company Order . . . . . . . . . . . . . . 3
Conversion Event . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . 4
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 4
Dollar or $ . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ECU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
European Monetary System . . . . . . . . . . . . . . . . . . . . 4
European Union . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Currency . . . . . . . . . . . . . . . . . . . . . . . . 5
Government Obligations . . . . . . . . . . . . . . . . . . . . . 5
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Independent Public Accountants . . . . . . . . . . . . . . . . . 6
Indexed Security . . . . . . . . . . . . . . . . . . . . . . . . 6
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . 6
i
<PAGE> 4
Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . 6
Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 6
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New York Banking Day . . . . . . . . . . . . . . . . . . . . . . 6
Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . 6
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . 6
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . 7
Original Issue Discount Security . . . . . . . . . . . . . . . . 7
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . 8
Predecessor Security . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . 9
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . 9
Registered Security . . . . . . . . . . . . . . . . . . . . . . 9
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . 9
Required Currency . . . . . . . . . . . . . . . . . . . . . . . 9
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . 9
Security or Securities . . . . . . . . . . . . . . . . . . . . . 9
Security Register and Security Registrar . . . . . . . . . . . . 9
Special Record Date . . . . . . . . . . . . . . . . . . . . . . 9
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . 9
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . 10
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
United States . . . . . . . . . . . . . . . . . . . . . . . . . 10
United States Alien . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Depository or Depository . . . . . . . . . . . . . . . . . 10
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . 10
Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.2. Compliance Certificates and Opinions. . . . . . 11
Section 1.3. Form of Documents Delivered to Trustee. . . . . 11
Section 1.4. Acts of Holders. . . . . . . . . . . . . . . . 12
Section 1.5. Notices, etc. to Trustee and Company. . . . . . 14
Section 1.6. Notice to Holders of Securities; Waiver. . . . 14
Section 1.7. Language of Notices . . . . . . . . . . . . . . 15
Section 1.8. Conflict with Trust Indenture Act. . . . . . . 16
Section 1.9. Effect of Headings and Table of Contents. . . . 16
Section 1.10. Successors and Assigns. . . . . . . . . . . . . 16
Section 1.11. Separability Clause. . . . . . . . . . . . . . 16
Section 1.12. Benefits of Indenture. . . . . . . . . . . . . 16
Section 1.13. Governing Law. . . . . . . . . . . . . . . . . 16
Section 1.14. Legal Holidays. . . . . . . . . . . . . . . . . 17
ii
<PAGE> 5
Section 1.15. Counterparts. . . . . . . . . . . . . . . . . . . 17
Section 1.16. Judgment Currency. . . . . . . . . . . . . . . . 17
Section 1.17. No Security Interest Created. . . . . . . . . . . 18
ARTICLE 2
SECURITIES FORMS
Section 2.1. Forms Generally . . . . . . . . . . . . . . . . . 18
Section 2.2. Form of Trustee's Certificate of
Authentication. . . . . . . . . . . . . . . . . . 19
Section 2.3. Securities in Global Form . . . . . . . . . . . . 19
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series. . . . . . . 20
Section 3.2. Currency; Denominations . . . . . . . . . . . . . 24
Section 3.3. Execution, Authentication, Delivery and Dating. . 24
Section 3.4. Temporary Securities. . . . . . . . . . . . . . . 26
Section 3.5. Registration, Transfer and Exchange . . . . . . . 27
Section 3.6. Mutilated, Destroyed, Lost and Stolen
Securities. . . . . . . . . . . . . . . . . . . . 31
Section 3.7. Payment of Interest and Certain Additional
Amounts; Rights to Interest and Certain
Additional
Amounts Preserved . . . . . . . . . . . . . . . . 32
Section 3.8. Persons Deemed Owners. . . . . . . . . . . . . . 33
Section 3.9. Cancellation. . . . . . . . . . . . . . . . . . . 34
Section 3.10. Computation of Interest. . . . . . . . . . . . . 34
SECTION 3.11. CUSIP NUMBERS . . . . . . . . . . . . . . . . . . 34
============= ============= ==
ARTICLE 4
SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.1. Satisfaction and Discharge. . . . . . . . . . . . 35
Section 4.2. Defeasance and Covenant Defeasance. . . . . . . . 36
Section 4.3. Application of Trust Money. . . . . . . . . . . . 40
ARTICLE 5
REMEDIES
Section 5.1. Events of Default . . . . . . . . . . . . . . . . 41
Section 5.2. Acceleration of Maturity; Rescission and
Annulment . . . . . . . . . . . . . . . . . . . . 43
Section 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . 44
iii
<PAGE> 6
Section 5.4. Trustee May File Proofs of Claim ............... 45
Section 5.5. Trustee May Enforce Claims without
Possession of Securities or Coupons ............ 46
Section 5.6. Application of Money Collected ................. 46
Section 5.7. Limitations on Suits ........................... 46
Section 5.8. Unconditional Right of Holders to Receive
Principal and any Premium, Interest and
Additional Amounts ............................. 47
Section 5.9. Restoration of Rights and Remedies ............. 48
Section 5.10. Rights and Remedies Cumulative ................. 48
Section 5.11. Delay or Omission Not Waiver ................... 48
Section 5.12. Control by Holders of Securities ............... 48
Section 5.13. Waiver of Past Defaults ........................ 49
Section 5.14. Waiver of Usury, Stay or Extension Laws ........ 49
Section 5.15. Undertaking for Costs .......................... 49
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Rights of Trustee ...................... 50
Section 6.2. Notice of Defaults ............................. 52
Section 6.3. Not Responsible for Recitals or Issuance
of Securities .................................. 52
Section 6.4. May Hold Securities ............................ 52
Section 6.5. Money Held in Trust ............................ 53
Section 6.6. Compensation and Reimbursemen .................. 53
Section 6.7. Corporate Trustee Required; Eligibility ........ 54
Section 6.8. Resignation and Removal; Appointment
of Successor ................................... 54
Section 6.9. Acceptance of Appointment by Successor ......... 56
Section 6.10. Merger, Conversion, Consolidation or
Succession to Business ......................... 57
Section 6.11. Appointment of Authenticating Agent ............ 57
ARTICLE 7
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and
Addresses of Holders ........................... 59
Section 7.2. Preservation of Information;
Communications to Holders ...................... 60
Section 7.3. Reports by Trustee ............................. 60
Section 7.4. Reports by Company ............................. 61
iv
<PAGE> 7
ARTICLE 8
CONSOLIDATION, MERGER AND SALES
Section 8.1. Company May Consolidate, Etc., Only on
Certain Terms . . . . . . . . . . . . . . . . . . 61
Section 8.2. Successor Person Substituted for Company. . . . . 62
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent
of Holders. . . . . . . . . . . . . . . . . . . . 63
Section 9.2. Supplemental Indentures with Consent of
Holders . . . . . . . . . . . . . . . . . . . . . 64
Section 9.3. Execution of Supplemental Indentures. . . . . . . 65
Section 9.4. Effect of Supplemental Indentures . . . . . . . . 66
Section 9.5. Reference in Securities to Supplemental
Indentures. . . . . . . . . . . . . . . . . . . . 66
Section 9.6. Conformity with Trust Indenture Act . . . . . . . 66
Section 9.7. Notice of Supplemental Indenture. . . . . . . . . 66
ARTICLE 10
COVENANTS
Section 10.1. Payment of Principal, any Premium,
Interest and Additional Amounts . . . . . . . . . 66
Section 10.2. Maintenance of Office or Agency . . . . . . . . . 67
Section 10.3. Money for Securities Payments to Be Held
in Trust . . . . . . . . . . . . . . . . . . . . 68
Section 10.4. Additional Amounts. . . . . . . . . . . . . . . . 69
Section 10.5. . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.6. . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.7. Corporate Existence. . . . . . . . . . . . . . . 70
Section 10.8. Waiver of Certain Covenants. . . . . . . . . . . 71
Section 10.9. Company Statement as to Compliance; Notice
of Certain Defaults . . . . . . . . . . . . . . . 71
SECTION 10.10. CALCULATION OF ORIGINAL ISSUE DISCOUNT. . . . . . 72
======================================================= ==
ARTICLE 11
REDEMPTION OF SECURITIES
Section 11.1. Applicability of Article. . . . . . . . . . . . . 72
Section 11.2. Election to Redeem; Notice to Trustee . . . . . . 72
Section 11.3. Selection by Trustee of Securities to
be Redeemed . . . . . . . . . . . . . . . . . . . 72
Section 11.4. Notice of Redemption. . . . . . . . . . . . . . . 73
Section 11.5. Deposit of Redemption Price . . . . . . . . . . . 75
v
<PAGE> 8
Section 11.6. Securities Payable on Redemption Date . . . . . . 75
Section 11.7. Securities Redeemed in Part . . . . . . . . . . . 76
ARTICLE 12
SINKING FUNDS
Section 12.1. Applicability of Article. . . . . . . . . . . . . 76
Section 12.2. Satisfaction of Sinking Fund Payments
with Securities . . . . . . . . . . . . . . . . . 77
Section 12.3. Redemption of Securities for Sinking Fund . . . . 77
ARTICLE 13
REPAYMENT AT THE OPTION OF HOLDERS
Section 13.1. Applicability of Article. . . . . . . . . . . . . 78
ARTICLE 14
SECURITIES IN FOREIGN CURRENCIES
Section 14.1. Applicability of Article. . . . . . . . . . . . . 78
ARTICLE 15
MEETINGS OF HOLDERS OF SECURITIES
Section 15.1. Purposes for Which Meetings May Be Called . . . . 79
Section 15.2. Call, Notice and Place of Meetings. . . . . . . . 79
Section 15.3. Persons Entitled to Vote at Meetings. . . . . . . 80
Section 15.4. Quorum; Action. . . . . . . . . . . . . . . . . . 80
Section 15.5. Determination of Voting Rights; Conduct
and Adjournment of Meetings . . . . . . . . . . . 81
Section 15.6. Counting Votes and Recording Action of
Meetings . . . . . . . . . . . . . . . . . . . . 82
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<PAGE> 9
INDENTURE, dated as of , 1997 (the "Indenture"), between
HOMESIDE LENDING, INC., a corporation duly organized and existing under the
laws of the State of Florida (hereinafter called the "Company"), having its
principal executive office located at 7301 Baymeadows Way, Jacksonville,
Florida 32256, and The Bank of New York, a banking corporation duly organized
and existing under the laws of the State of New York (hereinafter called the
"Trustee"), having its Corporate Trust Office located at 101 Barclay Street,
Floor 21 West, New York, New York 10286.
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its senior unsecured
debentures, notes or other evidences of indebtedness (hereinafter called the
"Securities"), unlimited as to principal amount, to bear such rates of interest,
to mature at such time or times, to be issued in one or more series and to have
such other provisions as shall be fixed as hereinafter provided.
The Company has duly authorized the execution and delivery of this
Indenture. All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder that are required to be part of this
Indenture and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as herein defined) thereof, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the
Securities or of any series thereof and any Coupons (as herein defined) as
follows:
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ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
Except as otherwise expressly provided in or pursuant to this Indenture
or unless the context otherwise requires, for all purposes of this Indenture:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles in the United States of America and, except as
otherwise herein expressly provided, the terms "generally accepted
accounting principles" or "GAAP" with respect to any computation
required or permitted hereunder shall mean such accounting principles
as are generally accepted in the United States of America at the date
or time of such computation;
(4) the words "herein", "hereof", "hereto" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision; and
(5) the word "or" is always used inclusively (for example, the
phrase "A or B" means "A or B or both", not "either A or B but not
both").
Certain terms used principally in certain Articles hereof are defined
in those Articles.
"Act", when used with respect to any Holders, has the meaning specified
in Section 1.4.
"Additional Amounts" means any additional amounts which are required
hereby or by any Security, under circumstances specified herein or therein, to
be paid by the Company in respect of certain taxes, assessments or other
governmental charges imposed on Holders specified therein and which are owing to
such Holders.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
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"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.11 to act on behalf of the Trustee to authenticate
Securities of one or more series.
"Authorized Newspaper" means a newspaper, in an official language of
the place of publication or in the English language, customarily published on
each day that is a Business Day in the place of publication, whether or not
published on days that are Legal Holidays in the place of publication, and of
general circulation in each place in connection with which the term is used or
in the financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any day that is a Business Day in the
place of publication.
"Authorized Officer" means, when used with respect to the Company, the
Chairman of the Board of Directors, a Vice Chairman, the President, any Vice
President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company.
"Bearer Security" means any Security in the form established pursuant
to Section 2.1 which is payable to bearer.
"Board of Directors" means the board of directors of the Company or any
committee of that board duly authorized to act generally or in any particular
respect for the Company hereunder.
"Board Resolution" means a copy of one or more resolutions, certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, delivered to the Trustee.
"Business Day," with respect to any Place of Payment or other location,
means, unless otherwise specified with respect to any Securities pursuant to
Section 3.1, any day other than a Saturday, Sunday or other day on which banking
institutions in such Place of Payment or other location are authorized or
obligated by law, regulation or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Common Stock" includes any capital stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company.
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<PAGE> 12
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person, and any other obligor upon the
Securities.
"Company Request" and "Company Order" mean, respectively, a written
request or order, as the case may be, signed in the name of the Company by the
Chairman of the Board of Directors, a Vice Chairman, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
other than the ECU both by the government of the country or the confederation
which issued such Foreign Currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Union or (iii) any currency unit or composite currency other than the ECU for
the purposes for which it was established unless otherwise specified with
respect to any Securities pursuant to Section 3.1, all payments of principal of
and premium, if any, and interest on any Debt Security that are payable in a
Foreign Currency that ceases to be used by the government or confederation of
issuance shall be made in U.S. dollars.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of original execution of this
Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York
10286.
"Corporation" includes corporations and limited liability companies
and, except for purposes of Article 8, associations, companies and business
trusts.
"Coupon" means any interest coupon appertaining to a Bearer Security.
"Currency", with respect to any payment, deposit or other transfer in
respect of the principal of or any premium or interest on or any Additional
Amounts with respect to any Security, means Dollars or the Foreign Currency, as
the case may be, in which such payment, deposit or other transfer is required to
be made by or pursuant to the terms hereof or such Security and, with respect to
any other payment, deposit or transfer pursuant to or contemplated by the terms
hereof or such Security, means Dollars.
"CUSIP number" means the alphanumeric designation assigned to a
Security by Standard & Poor's Corporation, CUSIP Service Bureau.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Dollar" or "$" means a dollar or other equivalent unit of legal
tender for payment of public or private debts in the United States of America.
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<PAGE> 13
"ECU" means the European Currency Units as defined and revised from
time to time by the Council of the European Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Community.
"European Union" means the European Community, the European Coal and
Steel Community and the European Atomic Energy Community.
"Event of Default" has the meaning specified in Section 5.1.
"Foreign Currency" means any currency, currency unit or composite
currency, including, without limitation, the ECU, issued by the government of
one or more countries other than the United States of America or by any
recognized confederation or association of such governments.
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government or governments in
the confederation which issued the Foreign Currency in which the principal of or
any premium or interest on such Security or any Additional Amounts in respect
thereof shall be payable, in each case where the payment or payments thereunder
are supported by the full faith and credit of such government or governments or
(ii) obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America or such other government or
governments, in each case where the timely payment or payments thereunder are
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government or governments, and which, in the
case of (i) or (ii), are not callable or redeemable at the option of the issuer
or issuers thereof, and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to any such Government Obligation or
a specific payment of interest on or principal of or other amount with respect
to any such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of or other amount with respect to the Government Obligation evidenced
by such depository receipt.
"Holder", in the case of any Registered Security, means the Person in
whose name such Security is registered in the Security Register and, in the case
of any Bearer Security, means the bearer thereof and, in the case of any Coupon,
means the bearer thereof.
"Indebtedness", means, with respect to any Person, without duplication,
(a) any liability of such Person (1) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, or (2) evidenced by a
bond, note, debenture or similar instrument, or (3) for payment obligations
arising under any conditional sale or other title retention arrangement
(including a purchase money obligation) given in connection with the acquisition
of any businesses, properties or assets of any kind, or (4) for the payment of
money relating to a capitalized lease obligation;
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<PAGE> 14
(b) any liability of others of a type described in the preceding clause (a) that
such Person has guaranteed or that is otherwise its legal liability; and (c) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (a) and (b) above.
"Indenture" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and, with respect to any
Security, by the terms and provisions of such Security and any Coupon
appertaining thereto established pursuant to Section 3.1 (as such terms and
provisions may be amended pursuant to the applicable provisions hereof).
"Independent Public Accountants" means accountants or a firm of
accountants that, with respect to the Company and any other obligor under the
Securities or the Coupons, are independent public accountants within the meaning
of the Securities Act of 1933, as amended, and the rules and regulations
promulgated by the Commission thereunder, who may be the independent public
accountants regularly retained by the Company or who may be other independent
public accountants. Such accountants or firm shall be entitled to rely upon any
Opinion of Counsel as to the interpretation of any legal matters relating to
this Indenture or certificates required to be provided hereunder.
"Indexed Security" means a Security the terms of which provide that the
principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"Interest", with respect to any Original Issue Discount Security which
by its terms bears interest only after Maturity, means interest payable after
Maturity and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 10.4, includes such Additional
Amounts.
"Interest Payment Date", with respect to any Security, means the Stated
Maturity of an installment of interest on such Security.
"Judgment Currency" has the meaning specified in Section 1.16.
"Legal Holidays" has the meaning specified in Section 1.14.
"Maturity", with respect to any Security, means the date on which the
principal of such Security or an installment of principal becomes due and
payable as provided in or pursuant to this Indenture, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption or repurchase,
notice of option to elect repayment or otherwise, and includes the Redemption
Date.
"New York Banking Day" has the meaning specified in Section 1.16.
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<PAGE> 15
"Office" or "Agency", with respect to any Securities, means an office
or agency of the Company maintained or designated in a Place of Payment for such
Securities pursuant to Section 10.2 or any other office or agency of the Company
maintained or designated for such Securities pursuant to Section 10.2 or, to the
extent designated or required by Section 10.2 in lieu of such office or agency,
the Corporate Trust Office of the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman, the President or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, that complies with the requirements of Section 314(e) of the Trust
Indenture Act and is delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee, that, if required by the Trust Indenture Act,
complies with the requirements of Section 314(e) of the Trust Indenture Act.
"Original Issue Discount Security" means a Security issued pursuant to
this Indenture which provides for declaration of an amount less than the
principal face amount thereof to be due and payable upon acceleration pursuant
to Section 5.2.
"Outstanding", when used with respect to any Securities, means, as of
the date of determination, all such Securities theretofore authenticated and
delivered under this Indenture, except:
(a) any such Security theretofore cancelled by the
Trustee or the Security Registrar or delivered to the
Trustee or the Security Registrar for cancellation;
(b) any such Security for whose payment at the Maturity
thereof money in the necessary amount has been
theretofore deposited pursuant hereto (other than
pursuant to Section 4.2) with the Trustee or any
Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the
Holders of such Securities and any Coupons
appertaining thereto, provided that, if such
Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the
Trustee has been made;
(c) any such Security with respect to which the Company
has effected defeasance pursuant to the terms hereof,
except to the extent provided in Section 4.2;
(d) any such Security which has been paid pursuant to
Section 3.6 or in exchange for or in lieu of which
other Securities have been authenticated
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<PAGE> 16
and delivered pursuant to this Indenture, unless
there shall have been presented to the Trustee proof
satisfactory to it that such Security is held by a
bona fide purchaser in whose hands such Security is a
valid obligation of the Company; and
(e) any such Security converted or exchanged as
contemplated by this Indenture into Common Stock or
other securities, if the terms of such Security
provide for such conversion or exchange pursuant to
Section 3.1;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders of Securities for quorum purposes, (i) the principal amount
of an Original Issue Discount Security that may be counted in making such
determination and that shall be deemed to be Outstanding for such purposes shall
be equal to the amount of the principal thereof that pursuant to the terms of
such Original Issue Discount Security would be declared (or shall have been
declared to be) due and payable upon a declaration of acceleration thereof
pursuant to Section 5.2 at the time of such determination, and (ii) the
principal amount of any Indexed Security that may be counted in making such
determination and that shall be deemed Outstanding for such purposes shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided in or pursuant to this Indenture, and (iii)
the principal amount of a Security denominated in a Foreign Currency shall be
the Dollar equivalent, determined on the date of original issuance of such
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the Dollar equivalent on the date of original issuance of such
Security of the amount determined as provided in (i) above) of such Security,
and (iv) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor, shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making any such determination or
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Securities which a Responsible Officer of the Trustee actually
knows to be so owned shall be so disregarded. Securities so owned which shall
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee (A) the pledgee's right so to act
with respect to such Securities and (B) that the pledgee is not the Company or
any other obligor upon the Securities or any Coupons appertaining thereto or an
Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, or any premium or interest on, or any Additional Amounts with
respect to, any Security or any Coupon on behalf of the Company.
"Person" means any individual, Corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
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<PAGE> 17
"Place of Payment", with respect to any Security, means the place or
places where the principal of, or any premium or interest on, or any Additional
Amounts with respect to such Security are payable as provided in or pursuant to
this Indenture or such Security.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same Indebtedness as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.6 in exchange for or in
lieu of a lost, destroyed, mutilated or stolen Security or any Security to which
a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to
evidence the same Indebtedness as the lost, destroyed, mutilated or stolen
Security or the Security to which a mutilated, destroyed, lost or stolen Coupon
appertains.
"Redemption Date", with respect to any Security or portion thereof to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or such Security.
"Redemption Price", with respect to any Security or portion thereof to
be redeemed, means the price at which it is to be redeemed as determined by or
pursuant to this Indenture or such Security.
"Registered Security" means any Security established pursuant to
Section 2.1 which is registered in a Security Register.
"Regular Record Date" for the interest payable on any Registered
Security on any Interest Payment Date therefor means the date, if any, specified
in or pursuant to this Indenture or such Security as the "Regular Record Date".
"Required Currency" has the meaning specified in Section 1.16.
"Responsible Officer" means any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer, or any trust
officer or any other officer of the Corporate Trust Office of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"Security" or "Securities" means any note or notes, bond or bonds,
debenture or debentures, or any other evidences of Indebtedness, as the case may
be, authenticated and delivered under this Indenture; provided, however, that,
if at any time there is more than one Person acting as Trustee under this
Indenture, "Securities", with respect to any such Person, shall mean Securities
authenticated and delivered under this Indenture, exclusive, however, of
Securities of any series as to which such Person is not Trustee.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5.
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<PAGE> 18
"Special Record Date" for the payment of any Defaulted Interest on any
Registered Security means a date fixed by the Company pursuant to Section 3.7.
"Stated Maturity", with respect to any Security or any installment of
principal thereof or interest thereon or any Additional Amounts with respect
thereto, means the date established by or pursuant to this Indenture or such
Security as the fixed date on which the principal of such Security or such
installment of principal or interest is, or such Additional Amounts are, due and
payable.
"Subsidiary" means any Corporation of which at the time of
determination the Company and/or one or more Subsidiaries owns or controls
directly or indirectly more than 50% of the voting power of the shares of its
Voting Stock.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, and any reference herein to the Trust Indenture Act or a particular
provision thereof shall mean such Act or provision, as the case may be, as
amended or replaced from time to time or as supplemented from time to time by
rules or regulations adopted by the Commission under or in furtherance of the
purposes of such Act or provision, as the case may be.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean each Person
who is then a Trustee hereunder; provided, however, that if at any time there is
more than one such Person, "Trustee" shall mean each such Person and as used
with respect to the Securities of any series shall mean the Trustee with respect
to the Securities of such series.
"United States", except as otherwise provided in or pursuant to this
Indenture or any Security, means the United States of America (including the
states thereof and the District of Columbia), its territories and possessions
and other areas subject to its jurisdiction.
"United States Alien", except as otherwise provided in or pursuant to
this Indenture or any Security, means any Person who, for United States Federal
income tax purposes, is a foreign corporation, a non-resident alien individual,
a non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, for United States Federal
income tax purposes, a foreign corporation, a non-resident alien individual or a
non-resident alien fiduciary of a foreign estate or trust.
"U.S. Depository" or "Depository" means, with respect to any Security
issuable or issued in the form of one or more global Securities, the Person
designated as U.S. Depository or Depository by the Company in or pursuant to
this Indenture, which Person must be, to the extent required by applicable law
or regulation, a clearing agency registered under the Securities Exchange Act of
1934, as amended, and, if so provided with respect to any Security, any
successor to such Person. If at any time there is more than one such Person,
"U.S. Depository"
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<PAGE> 19
or "Depository" shall mean, with respect to any Securities, the qualifying
entity which has been appointed with respect to such Securities.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".
"Voting Stock" means stock of a Corporation of the class or one of the
classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such
Corporation (irrespective of whether or not at the time stock of any other class
or classes has or might have voting power by reason of the happening of any
contingency).
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
or any of them is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such condition or covenant and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such condition
or covenant has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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Section 1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, provided
that such officer, after reasonable inquiry, has no reason to believe and does
not believe that the Opinion of Counsel with respect to the matters upon which
his certificate or opinion is based is erroneous. Any such Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, provided that such counsel, after reasonable inquiry, has no
reason to believe and does not believe that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Security, they may, but need not, be
consolidated and form one instrument.
Section 1.4. Acts of Holders.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by or pursuant to this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing. If, but only if, Securities of a series are issuable as
Bearer Securities, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this Indenture to be
given or taken by Holders of Securities of such series may, alternatively, be
embodied in and evidenced by the record of Holders of Securities of such series
voting in favor thereof, either in person or by proxies duly appointed in
writing, at any meeting of Holders of Securities of such series duly called and
held in accordance with the provisions of Article 15, or a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments or so voting
at any such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security, shall
be sufficient for any purpose of this Indenture and (subject to Section 315 of
the Trust Indenture Act) conclusive in favor of the Trustee and the
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Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 15.6.
Without limiting the generality of this Section 1.4, unless otherwise
provided in or pursuant to this Indenture, a Holder, including a U.S. Depository
that is a Holder of a global Security, may make, give or take, by a proxy or
proxies duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other Act provided in or pursuant to this
Indenture to be made, given or taken by Holders, and a U.S. Depository that is a
Holder of a global Security may provide its proxy or proxies to the beneficial
owners of interests in any such global Security through such U.S. Depository's
standing instructions and customary practices.
The Company shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interest in any permanent global Security
held by a U.S. Depository entitled under the procedures of such U.S. Depository
to make, give or take, by a proxy or proxies duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided in or pursuant to this Indenture to be made, given or taken by Holders.
If such a record date is fixed, the Holders on such record date or their duly
appointed proxy or proxies, and only such Persons, shall be entitled to make,
give or take such request, demand, authorization, direction, notice, consent,
waiver or other Act, whether or not such Holders remain Holders after such
record date. No such request, demand, authorization, direction, notice, consent,
waiver or other Act shall be valid or effective if made, given or taken more
than 90 days after such record date.
(2) The fact and date of the execution by any Person of any such
instrument or writing referred to in this Section 1.4 may be proved in any
reasonable manner; and the Trustee may in any instance require further proof
with respect to any of the matters referred to in this Section.
(3) The ownership, principal amount and serial numbers of Registered
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, shall be proved by the Security Register.
(4) The ownership, principal amount and serial numbers of Bearer
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, may be proved by the production of such
Bearer Securities or by a certificate executed, as depositary, by any trust
company, bank, banker or other depositary reasonably acceptable to the Company,
wherever situated, if such certificate shall be deemed by the Company and the
Trustee to be satisfactory, showing that at the date therein mentioned such
Person had on deposit with such depositary, or exhibited to it, the Bearer
Securities therein described; or such facts may be proved by the certificate or
affidavit of the Person holding such Bearer Securities, if such certificate or
affidavit is deemed by the Trustee to be satisfactory. The Trustee and the
Company may assume that such ownership of any Bearer Security continues until
(i) another certificate or affidavit bearing a later date issued in respect of
the same Bearer Security is produced, or (ii) such
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Bearer Security is produced to the Trustee by some other Person, or (iii) such
Bearer Security is surrendered in exchange for a Registered Security, or (iv)
such Bearer Security is no longer Outstanding. The ownership, principal amount
and serial numbers of Bearer Securities held by the Person so executing such
instrument or writing and the date of the commencement and the date of the
termination of holding the same may also be proved in any other manner which the
Company and the Trustee deem sufficient.
(5) If the Company shall solicit from the Holders of any Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may at its option (but is not obligated to), by
Board Resolution, fix in advance a record date for the determination of Holders
of Registered Securities entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other Act. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
Registered Securities of record at the close of business on such record date
shall be deemed to be Holders for the purpose of determining whether Holders of
the requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders of Registered Securities shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
(6) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done or suffered to be done by the Trustee, any Security
Registrar, any Paying Agent or the Company in reliance thereon, whether or not
notation of such Act is made upon such Security.
Section 1.5. Notices, etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or
(2) the Company by the Trustee or any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to the attention of its Treasurer,
with a copy to the attention of its General Counsel, at the address of
its principal office
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specified in the first paragraph of this instrument or at any other
address previously furnished in writing to the Trustee by the Company.
Section 1.6. Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided in or pursuant to this
Indenture, where this Indenture provides for notice to Holders of Securities of
any event,
(1) such notice shall be sufficiently given to Holders of
Registered Securities if in writing and mailed, first-class postage
prepaid, to each Holder of a Registered Security affected by such
event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice; and
(2) such notice shall be sufficiently given to Holders of
Bearer Securities, if any, if published in an Authorized Newspaper in
The City of New York and, if such Securities are then listed on any
stock exchange outside the United States, in an Authorized Newspaper in
such city as the Company shall advise the Trustee that such stock
exchange so requires, on a Business Day at least twice, the first such
publication to be not earlier than the earliest date and the second
such publication not later than the latest date prescribed for the
giving of such notice.
In any case where notice to Holders of Registered Securities is given
by mail, neither the failure to mail such notice, nor any defect in any notice
so mailed, to any particular Holder of a Registered Security shall affect the
sufficiency of such notice with respect to other Holders of Registered
Securities or the sufficiency of any notice to Holders of Bearer Securities
given as provided herein. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided. In
case by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
In case by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of any notice mailed to
Holders of Registered Securities as provided above.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders of Securities shall
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be filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
Section 1.7. Language of Notices.
Any request, demand, authorization, direction, notice, consent,
election or waiver required or permitted under this Indenture shall be in the
English language, except that, if the Company so elects, any published notice
may be in an official language of the country of publication.
Section 1.8. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act imposed hereon by
Section 318(c) thereof, such required provision shall control.
Section 1.9. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture, any Security or any Coupon
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture, any Security or any Coupon, express or
implied, shall give to any Person, other than the parties hereto, any Security
Registrar, any Paying Agent, any Authenticating Agent and their successors
hereunder and the Holders of Securities or Coupons, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
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Section 1.13. Governing Law.
This Indenture, the Securities and any Coupons shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in said
state.
Section 1.14. Legal Holidays.
Unless otherwise specified in or pursuant to this Indenture or any
Securities, in any case where any Interest Payment Date, Stated Maturity or
Maturity of any Security, or the last date on which a Holder has the right to
convert or exchange Securities of a series that are convertible or exchangeable,
shall be a Legal Holiday at any Place of Payment, then (notwithstanding any
other provision of this Indenture, any Security or any Coupon other than a
provision in any Security or Coupon that specifically states that such provision
shall apply in lieu hereof) payment need not be made at such Place of Payment on
such date, and such Securities need not be converted or exchanged on such date
but such payment may be made, and such Securities may be converted or exchanged,
on the next succeeding day that is a Business Day at such Place of Payment with
the same force and effect as if made on the Interest Payment Date or at the
Stated Maturity or Maturity or on such last day for conversion or exchange, and
no interest shall accrue on the amount payable on such date or at such time for
the period from and after such Interest Payment Date, Stated Maturity, Maturity
or last day for conversion or exchange, as the case may be, to such next
succeeding Business Day.
Section 1.15. Counterparts.
This Indenture may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
Section 1.16. Judgment Currency.
The Company agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of obtaining judgment in any
court it is necessary to convert the sum due in respect of the principal of, or
premium or interest, if any, or Additional Amounts on the Securities of any
series (the "Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the requisite amount of the Required Currency with the
Judgment Currency on the New York Banking Day preceding the day on which a final
unappealable judgment is given and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not
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entered in accordance with clause (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt, by the payee, of the full amount of the Required Currency
expressed to be payable in respect of such payments, (ii) shall be enforceable
as an alternative or additional cause of action for the purpose of recovering in
the Required Currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the Required Currency so expressed to be
payable and (iii) shall not be affected by judgment being obtained for any other
sum due under this Indenture. For purposes of the foregoing, "New York Banking
Day" means any day except a Saturday, Sunday or a legal holiday in The City of
New York or a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to be closed.
Section 1.17. No Security Interest Created.
Subject to the provisions of Section 10.5, nothing in this Indenture or
in any Securities, express or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect in any jurisdiction where property of the
Company or its Subsidiaries is or may be located.
ARTICLE 2
SECURITIES FORMS
Section 2.1. Forms Generally.
Each Registered Security, Bearer Security, Coupon and temporary or
permanent global Security issued pursuant to this Indenture shall be in the form
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, shall have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by or pursuant
to this Indenture or any indenture supplemental hereto and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Security or Coupon as evidenced by their execution of
such Security or Coupon.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall be issuable in registered form without Coupons
and shall not be issuable upon the exercise of warrants.
Definitive Securities and definitive Coupons shall be printed,
lithographed or engraved or produced by any combination of these methods on a
steel engraved border or steel engraved borders or may be produced in any other
manner, all as determined by the officers of the
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Company executing such Securities or Coupons, as evidenced by their execution of
such Securities or Coupons.
Section 2.2. Form of Trustee's Certificate of Authentication.
Subject to Section 6.11, the Trustee's certificate of authentication
shall be in substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
The Bank of New York,
as Trustee
By___________________________
Authorized Signatory
Section 2.3. Securities in Global Form.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall not be issuable in temporary or permanent
global form. If Securities of a series shall be issuable in global form, any
such Security may provide that it or any number of such Securities shall
represent the aggregate amount of all Outstanding Securities of such series (or
such lesser amount as is permitted by the terms thereof) from time to time
endorsed thereon and may also provide that the aggregate amount of Outstanding
Securities represented thereby may from time to time be increased or reduced to
reflect exchanges. Any endorsement of any Security in global form to reflect the
amount, or any increase or decrease in the amount, or changes in the rights of
Holders, of Outstanding Securities represented thereby shall be made in such
manner and by such Person or Persons as shall be specified therein or in the
Company Order to be delivered pursuant to Section 3.3 or 3.4 with respect
thereto. Subject to the provisions of Section 3.3 and, if applicable, Section
3.4, the Trustee shall deliver and redeliver, in each case at the Company's
expense, any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 3.3 or 3.4 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to a Security in global form shall be in writing but need not be
accompanied by or contained in an Officers' Certificate and need not be
accompanied by an Opinion of Counsel.
Notwithstanding the provisions of Section 3.7, unless otherwise
specified in or pursuant to this Indenture or any Securities, payment of
principal of, any premium and interest on, and any Additional Amounts in respect
of, any Security in temporary or permanent global form shall be made to the
Person or Persons specified therein.
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Notwithstanding the provisions of Section 3.8 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
or the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities represented by a global Security (i) in the case of a global Security
in registered form, the Holder of such global Security in registered form, or
(ii) in the case of a global Security in bearer form, the Person or Persons
specified pursuant to Section 3.1.
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited. The Securities may be issued in
one or more series.
With respect to any Securities to be authenticated and delivered
hereunder, there shall be established in or pursuant to a Board Resolution and
set forth in an Officers' Certificate, or established in one or more indentures
supplemental hereto,
(1) the title of such Securities and the series in which such
Securities shall be included;
(2) any limit upon the aggregate principal amount of the
Securities of such title or the Securities of such series which may be
authenticated and delivered under this Indenture (except for Securities
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of such series pursuant
to Section 3.4, 3.5, 3.6, 9.5 or 11.7, upon repayment in part of any
Registered Security of such series pursuant to Article 13, upon
surrender in part of any Registered Security for conversion into Common
Stock or exchange for other securities pursuant to its terms, or
pursuant to or as contemplated by the terms of such Securities);
(3) if such Securities are to be issuable as Registered
Securities, as Bearer Securities or alternatively as Bearer Securities
and Registered Securities, and whether the Bearer Securities are to be
issuable with Coupons, without Coupons or both, and any restrictions
applicable to the offer, sale or delivery of the Bearer Securities and
the terms, if any, upon which Bearer Securities may be exchanged for
Registered Securities and vice versa;
(4) if any of such Securities are to be issuable in global
form, when any of such Securities are to be issuable in global form and
(i) whether such Securities are to be issued in temporary or permanent
global form or both, (ii) whether beneficial owners of interests in any
such global Security may exchange such interests for Securities of the
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same series and of like tenor and of any authorized form and
denomination, and the circumstances under which any such exchanges may
occur, if other than in the manner specified in Section 3.5, and (iii)
the name of the Depository or the U.S. Depository, as the case may be,
with respect to any such global Security;
(5) if any of such Securities are to be issuable as Bearer
Securities or in global form, the date as of which any such Bearer
Security or global Security shall be dated (if other than the date of
original issuance of the first of such Securities to be issued);
(6) if any of such Securities are to be issuable as Bearer
Securities, whether interest in respect of any portion of a temporary
Bearer Security in global form payable in respect of an Interest
Payment Date therefor prior to the exchange, if any, of such temporary
Bearer Security for definitive Securities shall be paid to any clearing
organization with respect to the portion of such temporary Bearer
Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any
such interest payment received by a clearing organization will be
credited to the Persons entitled to interest payable on such Interest
Payment Date;
(7) the date or dates, or the method or methods, if any, by
which such date or dates shall be determined, on which the principal of
such Securities is payable;
(8) the rate or rates at which such Securities shall bear
interest, if any, or the method or methods, if any, by which such rate
or rates are to be determined, the date or dates, if any, from which
such interest shall accrue or the method or methods, if any, by which
such date or dates are to be determined, the Interest Payment Dates, if
any, on which such interest shall be payable and the Regular Record
Date, if any, for the interest payable on Registered Securities on any
Interest Payment Date, whether and under what circumstances Additional
Amounts on such Securities or any of them shall be payable, the notice,
if any, to Holders regarding the determination of interest on a
floating rate Security and the manner of giving such notice, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(9) if in addition to or other than the Borough of Manhattan,
The City of New York, the place or places where the principal of, any
premium and interest on or any Additional Amounts with respect to such
Securities shall be payable, any of such Securities that are Registered
Securities may be surrendered for registration of transfer or exchange,
any of such Securities may be surrendered for conversion or exchange
and notices or demands to or upon the Company in respect of such
Securities and this Indenture may be served, the extent to which, or
the manner in which, any interest payment or Additional Amounts on a
global Security on an Interest Payment Date, will be paid and the
manner in which any principal of or premium, if any, on any global
Security will be paid;
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(10) whether any of such Securities are to be redeemable at
the option of the Company and, if so, the date or dates on which, the
period or periods within which, the price or prices at which and the
other terms and conditions upon which such Securities may be redeemed,
in whole or in part, at the option of the Company;
(11) whether the Company is obligated to redeem or purchase
any of such Securities pursuant to any sinking fund or analogous
provision or at the option of any Holder thereof and, if so, the date
or dates on which, the period or periods within which, the price or
prices at which and the other terms and conditions upon which such
Securities shall be redeemed or purchased, in whole or in part,
pursuant to such obligation, and any provisions for the remarketing of
such Securities so redeemed or purchased;
(12) the denominations in which any of such Securities that
are Registered Securities shall be issuable if other than denominations
of $1,000 and any integral multiple thereof, and the denominations in
which any of such Securities that are Bearer Securities shall be
issuable if other than the denomination of $5,000;
(13) whether the Securities of the series will be convertible
into shares of Common Stock and/or exchangeable for other securities,
and if so, the terms and conditions upon which such Securities will be
so convertible or exchangeable, and any deletions from or modifications
or additions to this Indenture to permit or to facilitate the issuance
of such convertible or exchangeable Securities or the administration
thereof;
(14) if other than the principal amount thereof, the portion
of the principal amount of any of such Securities that shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 5.2 or the method by which such portion is to be determined;
(15) if other than Dollars, the Foreign Currency in which
payment of the principal of, any premium or interest on or any
Additional Amounts with respect to any of such Securities shall be
payable;
(16) if the principal of, any premium or interest on or any
Additional Amounts with respect to any of such Securities are to be
payable, at the election of the Company or a Holder thereof or
otherwise, in Dollars or in a Foreign Currency other than that in which
such Securities are stated to be payable, the date or dates on which,
the period or periods within which, and the other terms and conditions
upon which, such election may be made, and the time and manner of
determining the exchange rate between the Currency in which such
Securities are stated to be payable and the Currency in which such
Securities or any of them are to be paid pursuant to such election, and
any deletions from or modifications of or additions to the terms of
this Indenture to provide for or to facilitate the issuance of
Securities denominated or payable, at the election of the Company or a
Holder thereof or otherwise, in a Foreign Currency;
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(17) whether the amount of payments of principal of, any premium or
interest on or any Additional Amounts with respect to such Securities may
be determined with reference to an index, formula or other method or
methods (which index, formula or method or methods may be based, without
limitation, on one or more Currencies, commodities, equity securities,
equity indices or other indices), and, if so, the terms and conditions upon
which and the manner in which such amounts shall be determined and paid or
payable;
(18) any deletions from, modifications of or additions to the Events of
Default or covenants of the Company with respect to any of such Securities,
whether or not such Events of Default or covenants are consistent with the
Events of Default or covenants set forth herein;
(19) whether either or both of Section 4.2(2) relating to defeasance or
Section 4.2(3) relating to covenant defeasance shall not be applicable to
the Securities of such series, or any covenants in addition to those
specified in Section 4.2(3) relating to the Securities of such series which
shall be subject to covenant of defeasance, and any deletions from, or
modifications or additions to, the provisions of Article 4 in respect of
the Securities of such series;
(20) whether any of such Securities are to be issuable upon the
exercise of warrants, and the time, manner and place for such Securities to
be authenticated and delivered;
(21) if any of such Securities are to be issuable in global form and
are to be issuable in definitive form (whether upon original issue or upon
exchange of a temporary Security) only upon receipt of certain certificates
or other documents or satisfaction of other conditions, then the form and
terms of such certificates, documents or conditions;
(22) if there is more than one Trustee, the identity of the Trustee
and, if not the Trustee, the identity of each Security Registrar, Paying
Agent or Authenticating Agent with respect to such Securities; and
(23) any other terms of such Securities and any other deletions from or
modifications or additions to this Indenture in respect of such Securities.
All Securities of any one series and all Coupons, if any, appertaining to
Bearer Securities of such series shall be substantially identical except as to
Currency of payments due thereunder, denomination and the rate of interest
thereon, or method of determining the rate of interest, if any, Maturity, and
the date from which interest, if any, shall accrue and except as may otherwise
be provided by the Company in or pursuant to the Board Resolution and set forth
in the Officers' Certificate or in any indenture or indentures supplemental
hereto pertaining to such series of Securities. The terms of the Securities of
any series may provide, without limitation, that the Securities shall be
authenticated and delivered by the Trustee on original issue from time to time
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upon written order of persons designated in the Officers' Certificate or
supplemental indenture and that such persons are authorized to determine,
consistent with such Officers' Certificate or any applicable supplemental
indenture, such terms and conditions of the Securities of such series as are
specified in such Officers' Certificate or supplemental indenture. All
Securities of any one series need not be issued at the same time and, unless
otherwise so provided, a series may be reopened for issuances of additional
Securities of such series or to establish additional terms of such series of
Securities.
If any of the terms of the Securities of any series shall be
established by action taken by or pursuant to a Board Resolution, the Board
Resolution shall be delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of such series.
Section 3.2. Currency; Denominations.
Unless otherwise provided in or pursuant to this Indenture, the
principal of, any premium and interest on and any Additional Amounts with
respect to the Securities shall be payable in Dollars. Unless otherwise provided
in or pursuant to this Indenture, Registered Securities denominated in Dollars
shall be issuable in registered form without Coupons in denominations of $1,000
and any integral multiple thereof, and the Bearer Securities denominated in
Dollars shall be issuable in the denomination of $5,000. Securities not
denominated in Dollars shall be issuable in such denominations as are
established with respect to such Securities in or pursuant to this Indenture.
Section 3.3. Execution, Authentication, Delivery and Dating.
Securities shall be executed on behalf of the Company by its Chairman
of the Board, a Vice Chairman, its President, its Treasurer or a Vice President
under its corporate seal reproduced thereon and attested by its Secretary or one
of its Assistant Secretaries. Coupons shall be executed on behalf of the Company
by the Treasurer or any Assistant Treasurer of the Company. The signature of any
of these officers on the Securities or any Coupons appertaining thereto may be
manual or facsimile.
Securities and any Coupons appertaining thereto bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Company shall bind the Company, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the authentication and
delivery of such Securities and Coupons or did not hold such offices at the date
of original issuance of such Securities or Coupons.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities, together with any Coupons
appertaining thereto, executed by the Company, to the Trustee for authentication
and, provided that the Board Resolution and Officers' Certificate or
supplemental indenture or indentures with respect to such Securities
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referred to in Section 3.1 and a Company Order for the authentication and
delivery of such Securities have been delivered to the Trustee, the Trustee in
accordance with the Company Order and subject to the provisions hereof and of
such Securities shall authenticate and deliver such Securities. In
authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities and any Coupons appertaining
thereto, the Trustee shall be entitled to receive, and (subject to Sections
315(a) through 315(d) of the Trust Indenture Act) shall be fully protected in
relying upon,
(1) an Opinion of Counsel to the effect that:
(a) the form or forms and terms of such Securities and
Coupons, if any, have been established in conformity with the
provisions of this Indenture;
(b) all conditions precedent to the authentication and
delivery of such Securities and Coupons, if any, appertaining thereto,
have been complied with and that such Securities and Coupons, when
completed by appropriate insertions, executed under the Company's
corporate seal and attested by duly authorized officers of the Company,
delivered by duly authorized officers of the Company to the Trustee for
authentication pursuant to this Indenture, and authenticated and
delivered by the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
constitute legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as enforcement thereof may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium, arrangement, fraudulent
conveyance, fraudulent transfer or other similar laws relating to or
affecting creditors' rights generally, and subject to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and will entitle the Holders thereof to
the benefits of this Indenture; such Opinion of Counsel need express no
opinion as to the availability of equitable remedies; and
(c) all laws and requirements in respect of the execution
and delivery by the Company of such Securities and Coupons, if any,
have been complied with;
and, to the extent that this Indenture is required to be qualified under the
Trust Indenture Act in connection with the issuance of such Securities, to the
further effect that:
(d) this Indenture has been qualified under the Trust
Indenture Act; and
(2) an Officers' Certificate stating that all conditions precedent
to the execution, authentication and delivery of such Securities and Coupons, if
any, appertaining thereto, have been complied with and that, to the best
knowledge of the Persons executing such certificate, no event which is, or after
notice or lapse of time would become, an Event of Default with respect to any of
the Securities shall have occurred and be continuing.
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If all the Securities of any series are not to be issued at one time,
it shall not be necessary to deliver an Opinion of Counsel and an Officers'
Certificate at the time of issuance of each Security, but such opinion and
certificate, with appropriate modifications, shall be delivered at or before the
time of issuance of the first Security of such series. After any such first
delivery, any separate written request by an Authorized Officer of the Company
that the Trustee authenticate and deliver Securities of such series for original
issue will be deemed to be a certification by the Company that all conditions
precedent provided for in this Indenture relating to authentication and delivery
of such Securities continue to have been complied with.
The Trustee shall not be required to authenticate or to cause an
Authenticating Agent to authenticate any Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee or if the Trustee,
being advised by counsel, determines that such action may not lawfully be taken.
Each Registered Security shall be dated the date of its authentication.
Each Bearer Security and any Bearer Security in global form shall be dated as of
the date specified in or pursuant to this Indenture.
No Security or Coupon appertaining thereto shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose, unless
there appears on such Security a certificate of authentication substantially in
the form provided for in Section 2.2 or 6.11 executed by or on behalf of the
Trustee or by the Authenticating Agent by the manual signature of one of its
authorized signatories. Such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Except as permitted by Section 3.6 or 3.7, the Trustee
shall not authenticate and deliver any Bearer Security unless all Coupons
appertaining thereto then matured have been detached and cancelled.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute and deliver to the Trustee and, upon Company Order, the Trustee shall
authenticate and deliver, in the manner provided in Section 3.3, temporary
Securities in lieu thereof which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form or, if authorized in or pursuant to this
Indenture, in bearer form with one or more Coupons or without Coupons and with
such appropriate insertions, omissions, substitutions and other variations as
the officers of the Company executing such Securities may determine, as
conclusively evidenced by their execution of such Securities. Such temporary
Securities may be in global form.
Except in the case of temporary Securities in global form, which shall
be exchanged in accordance with the provisions thereof, if temporary Securities
are issued, the Company shall
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<PAGE> 35
cause definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities of the same series and containing terms and
provisions that are identical to those of any temporary Securities, such
temporary Securities shall be exchangeable for such definitive Securities upon
surrender of such temporary Securities at an Office or Agency for such
Securities, without charge to any Holder thereof. Upon surrender for
cancellation of any one or more temporary Securities (accompanied by any
unmatured Coupons appertaining thereto), the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations of the same series
and containing identical terms and provisions; provided, however, that no
definitive Bearer Security, except as provided in or pursuant to this Indenture,
shall be delivered in exchange for a temporary Registered Security; and
provided, further, that a definitive Bearer Security shall be delivered in
exchange for a temporary Bearer Security only in compliance with the conditions
set forth in or pursuant to this Indenture. Unless otherwise provided in or
pursuant to this Indenture with respect to a temporary global Security, until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
Section 3.5. Registration, Transfer and Exchange.
With respect to the Registered Securities of each series, if any, the
Company shall cause to be kept a register (each such register being herein
sometimes referred to as the "Security Register") at an Office or Agency for
such series in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Registered
Securities of such series and of transfers of the Registered Securities of such
series. Such Office or Agency shall be the "Security Registrar" for that series
of Securities. Unless otherwise specified in or pursuant to this Indenture or
the Securities, the Trustee shall be the initial Security Registrar for each
series of Securities. The Company shall have the right to remove and replace
from time to time the Security Registrar for any series of Securities; provided
that no such removal or replacement shall be effective until a successor
Security Registrar with respect to such series of Securities shall have been
appointed by the Company and shall have accepted such appointment by the
Company. In the event that the Trustee shall not be or shall cease to be
Security Registrar with respect to a series of Securities, it shall have the
right to examine the Security Register for such series at all reasonable times.
There shall be only one Security Register for each series of Securities.
Upon surrender for registration of transfer of any Registered Security
of any series at any Office or Agency for such series, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Registered Securities of
the same series denominated as authorized in or pursuant to this Indenture, of a
like aggregate principal amount bearing a number not contemporaneously
outstanding and containing identical terms and provisions.
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<PAGE> 36
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series containing
identical terms and provisions, in any authorized denominations, and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
any Office or Agency for such series. Whenever any Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive.
If provided in or pursuant to this Indenture, with respect to
Securities of any series, at the option of the Holder, Bearer Securities of such
series may be exchanged for Registered Securities of such series containing
identical terms, denominated as authorized in or pursuant to this Indenture and
in the same aggregate principal amount, upon surrender of the Bearer Securities
to be exchanged at any Office or Agency for such series, with all unmatured
Coupons and all matured Coupons in default thereto appertaining. If the Holder
of a Bearer Security is unable to produce any such unmatured Coupon or Coupons
or matured Coupon or Coupons in default, such exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
and the Trustee in an amount equal to the face amount of such missing Coupon or
Coupons, or the surrender of such missing Coupon or Coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Bearer Security shall surrender to any Paying
Agent any such missing Coupon in respect of which such a payment shall have been
made, such Holder shall be entitled to receive the amount of such payment;
provided, however, that, except as otherwise provided in Section 10.2, interest
represented by Coupons shall be payable only upon presentation and surrender of
those Coupons at an Office or Agency for such series located outside the United
States. Notwithstanding the foregoing, in case a Bearer Security of any series
is surrendered at any such Office or Agency for such series in exchange for a
Registered Security of such series and like tenor after the close of business at
such Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the next succeeding Interest Payment Date,
or (ii) any Special Record Date and before the opening of business at such
Office or Agency on the related date for payment of Defaulted Interest, such
Bearer Security shall be surrendered without the Coupon relating to such
Interest Payment Date or proposed date of payment, as the case may be (or, if
such Coupon is so surrendered with such Bearer Security, such Coupon shall be
returned to the Person so surrendering the Bearer Security), and interest or
Defaulted Interest, as the case may be, shall not be payable on such Interest
Payment Date or proposed date for payment, as the case may be, in respect of the
Registered Security issued in exchange for such Bearer Security, but shall be
payable only to the Holder of such Coupon when due in accordance with the
provisions of this Indenture.
If provided in or pursuant to this Indenture with respect to Securities
of any series, at the option of the Holder, Registered Securities of such series
may be exchanged for Bearer Securities upon such terms and conditions as may be
provided in or pursuant to this Indenture with respect to such series.
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<PAGE> 37
Whenever any Securities are surrendered for exchange as contemplated by
the immediately preceding two paragraphs, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise provided in or
pursuant to this Indenture, any global Security shall be exchangeable for
definitive Securities only if (i) the Depository is at any time unwilling,
unable or ineligible to continue as depository and a successor Depository is
not appointed by the Company within 90 days of the date the Company is so
informed in writing, (ii) the Company executes and delivers to the Trustee a
Company Order to the effect that such global Security shall be so exchangeable,
or (iii) an Event of Default has occurred and is continuing with respect to the
Securities. If the beneficial owners of interests in a global Security are
entitled to exchange such interests for definitive Securities as the result of
an event described in clause (i), (ii) or (iii) of the preceding sentence, then
without unnecessary delay but in any event not later than the earliest date on
which such interests may be so exchanged, the Company shall deliver to the
Trustee definitive Securities in such form and denominations as are required by
or pursuant to this Indenture, and of the same series, containing identical
terms and in aggregate principal amount equal to the principal amount of such
global Security, executed by the Company. On or after the earliest date on
which such interests may be so exchanged, such global Security shall be
surrendered from time to time by the U.S. Depository or such other Depository
as shall be specified in the Company Order with respect thereto, and in
accordance with instructions given to the Trustee and the U.S. Depository or
such other Depository, as the case may be (which instructions shall be in
writing but need not be contained in or accompanied by an Officers' Certificate
or be accompanied by an Opinion of Counsel), as shall be specified in the
Company Order with respect thereto to the Trustee, as the Company's agent for
such purpose, to be exchanged, in whole or in part, for definitive Securities
as described above without charge. The Trustee shall authenticate and deliver,
in exchange for each portion of such surrendered global Security, a like
aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such global
Security to be exchanged, which (unless such Securities are not issuable both
as Bearer Securities and as Registered Securities, in which case the definitive
Securities exchanged for the global Security shall be issuable only in the form
in which the Securities are issuable, as provided in or pursuant to this
Indenture) shall be in the form of Bearer Securities or Registered Securities,
or any combination thereof, as shall be specified by the beneficial owner
thereof, but subject to the satisfaction of any certification or other
requirements to the issuance of Bearer Securities; provided, however, that no
such exchanges may occur during a period beginning at the opening of business
15 days before the mailing of notice of redemption of any Securities of the
same series to be redeemed and ending on the relevant Redemption Date; and
provided, further, that (unless otherwise provided in or pursuant to this
Indenture) no Bearer Security delivered in exchange for a portion of a global
Security shall be mailed or otherwise delivered to any location in the United
States. Promptly following any such exchange in part, such global Security
shall be returned by the Trustee to such Depository or the U.S. Depository, as
the case may be, or such other Depository or U.S. Depository referred to above
in accordance with the instructions of the Company referred to above. If a
Registered Security is issued in exchange for any portion
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<PAGE> 38
of a global Security after the close of business at the Office or Agency for
such Security where such exchange occurs on or after (i) any Regular Record Date
for such Security and before the opening of business at such Office or Agency on
the next succeeding Interest Payment Date, or (ii) any Special Record Date for
such Security and before the opening of business at such Office or Agency on the
related proposed date for payment of interest or Defaulted Interest, as the case
may be, interest shall not be payable on such Interest Payment Date or proposed
date for payment, as the case may be, in respect of such Registered Security,
but shall be payable on such Interest Payment Date or proposed date for payment,
as the case may be, only to the Person to whom interest in respect of such
portion of such global Security shall be payable in accordance with the
provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt and entitling the Holders thereof to the same benefits under this Indenture
as the Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall (if so required by the Company or
the Security Registrar for such Security) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar for such Security duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange, or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge and any other
expenses (including fees and expenses of the Trustee) that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 9.5 or 11.7 not involving any transfer.
Except as otherwise provided in or pursuant to this Indenture, the
Company shall not be required (i) to issue, register the transfer of or
exchange any Securities during a period beginning at the opening of business 15
days before the day of mailing of notice of redemption of Securities of like
tenor and the same series under Section 11.3 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Registered Security so selected for redemption in whole or in
part, except in the case of any Security to be redeemed in part, the portion
thereof not to be redeemed, or (iii) to exchange any Bearer Security so
selected for redemption except, to the extent provided with respect to such
Bearer Security,that such Bearer Security may be exchanged for a Registered
Security of like tenor and the same series, provided that such Registered
Security shall be immediately surrendered for redemption with written
instruction for payment consistent with the provisions of this Indenture or
(iv) to issue, register the transfer of or exchange any Security which, in
accordance with its terms, has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Security not to be so repaid.
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Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security or a Security with a mutilated Coupon
appertaining to it is surrendered to the Trustee, subject to the provisions of
this Section 3.6, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a new Security of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding, with Coupons appertaining thereto corresponding
to the Coupons, if any, appertaining to the surrendered Security.
If there be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or Coupon,
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security or Coupon has been acquired by a
bona fide purchaser, the Company shall execute and, upon the Company's request
the Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Security or in exchange for the
Security to which a destroyed, lost or stolen Coupon appertains with all
appurtenant Coupons not destroyed, lost or stolen, a new Security of the same
series containing identical terms and of like principal amount and bearing a
number not contemporaneously outstanding, with Coupons appertaining thereto
corresponding to the Coupons, if any, appertaining to such destroyed, lost or
stolen Security or to the Security to which such destroyed, lost or stolen
Coupon appertains.
Notwithstanding the foregoing provisions of this Section 3.6, in case
any mutilated, destroyed, lost or stolen Security or Coupon has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, pay such Security or Coupon; provided, however, that
payment of principal of, any premium or interest on or any Additional Amounts
with respect to any Bearer Securities shall, except as otherwise provided in
Section 10.2, be payable only at an Office or Agency for such Securities located
outside the United States and, unless otherwise provided in or pursuant to this
Indenture, any interest on Bearer Securities and any Additional Amounts with
respect to such interest shall be payable only upon presentation and surrender
of the Coupons appertaining thereto.
Upon the issuance of any new Security under this Section 3.6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security, with any Coupons appertaining thereto issued
pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Security,
or in exchange for a Security to which a destroyed, lost or stolen Coupon
appertains shall constitute a separate obligation of the Company, whether or not
the destroyed, lost or stolen Security and Coupons appertaining thereto or the
destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of such series and any
Coupons, if any, duly issued hereunder.
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The provisions of this Section 3.6, as amended or supplemented pursuant
to this Indenture with respect to particular Securities or generally, shall be
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities or Coupons.
Section 3.7. Payment of Interest and Certain Additional Amounts; Rights
to Interest and Certain Additional Amounts Preserved.
Unless otherwise provided in or pursuant to this Indenture, any
interest on and any Additional Amounts with respect to any Registered Security
which shall be payable, and are punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name such Security
(or one or more Predecessor Securities) is registered as of the close of
business on the Regular Record Date for such interest.
Unless otherwise provided in or pursuant to this Indenture, any
interest on and any Additional Amounts with respect to any Registered Security
which shall be payable, but shall not be punctually paid or duly provided for,
on any Interest Payment Date for such Registered Security (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder thereof
on the relevant Regular Record Date by virtue of having been such Holder; and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Person in whose name such Registered Security
(or a Predecessor Security thereof) shall be registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed by the Company in the following manner.
The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on such Registered Security, the
Special Record Date therefor and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount
of money equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the proposed
payment, such money when so deposited to be held in trust for the
benefit of the Person entitled to such Defaulted Interest as in this
Clause provided. The Special Record Date for the payment of such
Defaulted Interest shall be not more than 15 days and not less than 10
days prior to the date of the proposed payment and not less than 10
days after notification to the Trustee of the proposed payment. The
Trustee shall, in the name and at the expense of the Company, cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to the Holder of such Registered Security (or a Predecessor Security
thereof) at his address as it appears in the Security Register not less
than 10 days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company cause a
similar notice to be published at least once in an Authorized Newspaper
of general circulation in the
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Borough of Manhattan, The City of New York, but such publication shall
not be a condition precedent to the establishment of such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid,
such Defaulted Interest shall be paid to the Person in whose name such
Registered Security (or a Predecessor Security thereof) shall be
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Security may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed
payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
Unless otherwise provided in or pursuant to this Indenture or the
Securities of any particular series pursuant to the provisions of this
Indenture, at the option of the Company, interest on Registered Securities that
bear interest may be paid by mailing a check to the address of the Person
entitled thereto as such address shall appear in the Security Register or by
wire transfer to an account maintained by the payee with a bank located in the
United States.
Subject to the foregoing provisions of this Section and Section 3.5,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
In the case of any Registered Security of any series that is
convertible into shares of Common Stock or exchangeable for other securities,
which Registered Security is converted or exchanged after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Registered Security with respect to which the Stated Maturity is prior to
such Interest Payment Date), interest with respect to which the Stated Maturity
is on such Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion or exchange, and such interest (whether or not
punctually paid or duly provided for) shall be paid to the Person in whose name
that Registered Security (or one or more predecessor Registered Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Registered Security which is converted or exchanged, interest with
respect to which the Stated Maturity is after the date of conversion or exchange
of such Registered Security shall not be payable.
Section 3.8. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered in the
Security Register as the owner of such
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Registered Security for the purpose of receiving payment of principal of, any
premium and (subject to Sections 3.5 and 3.7) interest on and any Additional
Amounts with respect to such Registered Security and for all other purposes
whatsoever, whether or not any payment with respect to such Registered Security
shall be overdue, and none of the Company, the Trustee or any agent of the
Company or the Trustee shall be affected by notice to the contrary.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the bearer of any Bearer Security or the bearer of any Coupon as the
absolute owner of such Security or Coupon for the purpose of receiving payment
thereof or on account thereof and for all other purposes whatsoever, whether or
not any payment with respect to such Security or Coupon shall be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
No Holder of any beneficial interest in any global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such global Security, and such Depository may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the owner of such global
Security for all purposes whatsoever. None of the Company, the Trustee, any
Paying Agent or the Security Registrar will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Section 3.9. Cancellation.
All Securities and Coupons surrendered for payment, redemption,
registration of transfer, exchange or conversion or for credit against any
sinking fund payment shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Securities and Coupons, as well as
Securities and Coupons surrendered directly to the Trustee for any such purpose,
shall be cancelled promptly by the Trustee. The Company may at any time deliver
to the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be cancelled promptly by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by or pursuant to this Indenture. All cancelled Securities and Coupons held by
the Trustee shall be returned to the Company.
Section 3.10. Computation of Interest.
Except as otherwise provided in or pursuant to this Indenture or in any
Security, interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 3.11. CUSIP NUMBERS.
============= ==============
THE COMPANY IN ISSUING THE SECURITIES MAY USE CUSIP NUMBERS (IF THEN
GENERALLY IN USE) AND, IF SO, THE TRUSTEE SHALL USE CUSIP NUMBERS IN NOTICES OF
REDEMPTION AS A CONVENIENCE TO HOLDERS; PROVIDED THAT ANY SUCH NOTICE MAY STATE
THAT NO REPRESENTATION IS MADE AS TO THE CORRECTNESS OF SUCH NUMBERS EITHER AS
PRINTED ON THE SECURITIES OR AS CONTAINED IN ANY NOTICE OF REDEMPTION AND THAT
RELIANCE MAY BE PLACED ONLY ON THE OTHER IDENTIFICATION NUMBERS PRINTED ON THE
SECURITIES, AND ANY SUCH REDEMPTION SHALL NOT BE AFFECTED BY ANY DEFECT IN OR
OMISSION OF SUCH CUSIP NUMBERS. THE COMPANY WILL PROMPTLY NOTIFY THE TRUSTEE
OF ANY CHANGE IN THE CUSIP NUMBERS.
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ARTICLE 4
SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.1. Satisfaction and Discharge.
Upon the direction of the Company by a Company Order, this Indenture
shall cease to be of further effect with respect to any series of Securities
specified in such Company Order and any Coupons appertaining thereto, and the
Trustee, on receipt of a Company Order, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture as to such series, when
(1) either
(a) all Securities of such series theretofore
authenticated and delivered and all Coupons appertaining thereto (other
than (i) Coupons appertaining to Bearer Securities of such series
surrendered in exchange for Registered Securities of such series and
maturing after such exchange whose surrender is not required or has
been waived as provided in Section 3.5, (ii) Securities and Coupons of
such series which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.6, (iii) Coupons
appertaining to Securities of such series called for redemption and
maturing after the relevant Redemption Date whose surrender has been
waived as provided in Section 11.7, and (iv) Securities and Coupons of
such series for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(b) all Securities of such series and, in the case of (i)
or (ii) below, any Coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) if redeemable at the option of the Company,
are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
such purpose, money in the Currency in which such Securities are
payable in an amount sufficient to pay and discharge the entire
indebtedness on such Securities and any Coupons appertaining
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thereto not theretofore delivered to the Trustee for cancellation,
including the principal of, any premium and interest on, and any
Additional Amounts with respect to such Securities and any Coupons
appertaining thereto, to the date of such deposit (in the case of
Securities which have become due and payable) or to the Maturity
thereof, as the case may be;
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company with respect to the Outstanding
Securities of such series and any Coupons appertaining thereto; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture as to such series have been complied with.
In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of such series as to which it is Trustee and if the other conditions
thereto are met.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to any series of Securities, the obligations of the Company to the
Trustee under Section 6.6 and, if money shall have been deposited with the
Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations
of the Company and the Trustee with respect to the Securities of such series
under Sections 3.5, 3.6, 4.3, 10.2 and 10.3, with respect to the payment of
Additional Amounts, if any, with respect to such Securities as contemplated by
Section 10.4 (but only to the extent that the Additional Amounts payable with
respect to such Securities exceed the amount deposited in respect of such
Additional Amounts pursuant to Section 4.1(1)(b)), and with respect to any
rights to convert or exchange such Securities into Common Stock or other
securities shall survive.
Section 4.2. Defeasance and Covenant Defeasance.
(1) Unless pursuant to Section 3.1, either or both of (i)
defeasance of the Securities of or within a series under clause (2) of this
Section 4.2 shall not be applicable with respect to the Securities of such
series or (ii) covenant defeasance of the Securities of or within a series under
clause (3) of this Section 4.2 shall not be applicable with respect to the
Securities of such series, then such provisions, together with the other
provisions of this Section 4.2 (with such modifications thereto as may be
specified pursuant to Section 3.1 with respect to any Securities), shall be
applicable to such Securities and any Coupons appertaining thereto, and the
Company may at its option by Board Resolution, at any time, with respect to such
Securities and any Coupons appertaining thereto, elect to have Section 4.2(2) or
Section 4.2(3) be applied to such Outstanding Securities and any Coupons
appertaining thereto upon compliance with the conditions set forth below in this
Section 4.2.
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(2) Upon the Company's exercise of the above option applicable to
this Section 4.2(2) with respect to any Securities of or within a series, the
Company shall be deemed to have been discharged from its obligations with
respect to such Outstanding Securities and any Coupons appertaining thereto on
the date the conditions set forth in clause (4) of this Section 4.2 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by such Outstanding Securities and any Coupons
appertaining thereto, which shall thereafter be deemed to be "Outstanding" only
for the purposes of clause (5) of this Section 4.2 and the other Sections of
this Indenture referred to in clauses (i) and (ii) below, and to have satisfied
all of its other obligations under such Securities and any Coupons appertaining
thereto and this Indenture insofar as such Securities and any Coupons
appertaining thereto are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of such Outstanding Securities and any
Coupons appertaining thereto to receive, solely from the trust fund described in
clause (4) of this Section 4.2 and as more fully set forth in such clause,
payments in respect of the principal of (and premium, if any) and interest, if
any, on, and Additional Amounts, if any, with respect to, such Securities and
any Coupons appertaining thereto when such payments are due, and any rights of
such Holder to convert such Securities into Common Stock or exchange such
Securities for other securities, (ii) the obligations of the Company and the
Trustee with respect to such Securities under Sections 3.5, 3.6, 10.2 and 10.3
with respect to the payment of Additional Amounts, if any, on such Securities as
contemplated by Section 10.4 (but only to the extent that the Additional Amounts
payable with respect to such Securities exceed the amount deposited in respect
of such Additional Amounts pursuant to Section 4.2(4)(a) below), and with
respect to any rights to convert such Securities into Common Stock or exchange
such Securities for other securities, (iii) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (iv) this Section 4.2. The Company
may exercise its option under this Section 4.2(2) notwithstanding the prior
exercise of its option under clause (3) of this Section 4.2 with respect to such
Securities and any Coupons appertaining thereto.
(3) Upon the Company's exercise of the option to have this Section
4.2(3) apply with respect to any Securities of or within a series, the Company
shall be released from its obligations under Sections 10.5 and 10.6, and, to the
extent specified pursuant to Section 3.1(19), any other covenant applicable to
such Securities, with respect to such Outstanding Securities and any Coupons
appertaining thereto on and after the date the conditions set forth in clause
(4) of this Section 4.2 are satisfied (hereinafter, "covenant defeasance"), and
such Securities and any Coupons appertaining thereto shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with any such covenant, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to such Outstanding Securities and any Coupons
appertaining thereto, the Company may omit to comply with, and shall have no
liability in respect of, any term, condition or limitation set forth in any such
Section or such other covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or such other covenant or by
reason of reference
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in any such Section or such other covenant to any other provision herein or in
any other document and such omission to comply shall not constitute a default or
an Event of Default under Section 5.1(4) or 5.1(9) or otherwise, as the case may
be, but, except as specified above, the remainder of this Indenture and such
Securities and Coupons appertaining thereto shall be unaffected thereby.
(4) The following shall be the conditions to application of clause
(2) or (3) of this Section 4.2 to any Outstanding Securities of or within a
series and any Coupons appertaining thereto:
(a) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 6.7 who shall agree to comply with the
provisions of this Section 4.2 applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities and any Coupons appertaining thereto, (1) an
amount in Dollars or in such Foreign Currency in which such Securities
and any Coupons appertaining thereto are then specified as payable at
Stated Maturity, or (2) Government Obligations applicable to such
Securities and Coupons appertaining thereto (determined on the basis of
the Currency in which such Securities and Coupons appertaining thereto
are then specified as payable at Stated Maturity) which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment of principal of (and premium, if any) and
interest, if any, on such Securities and any Coupons appertaining
thereto, money in an amount, or (3) a combination thereof, in any case,
in an amount, sufficient, without consideration of any reinvestment of
such principal and interest, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee)
to pay and discharge, (y) the principal of (and premium, if any) and
interest, if any, on such Outstanding Securities and any Coupons
appertaining thereto at the Stated Maturity of such principal or
installment of principal or premium or interest and (z) any mandatory
sinking fund payments or analogous payments applicable to such
Outstanding Securities and any Coupons appertaining thereto on the days
on which such payments are due and payable in accordance with the terms
of this Indenture and of such Securities and any Coupons appertaining
thereto.
(b) Such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound.
(c) No Event of Default or event which with notice or
lapse of time or both would become an Event of Default with respect to
such Securities and any Coupons appertaining thereto shall have
occurred and be continuing on the date of such deposit and, with
respect to defeasance only, at any time during the period ending on the
123rd
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day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(d) In the case of an election under clause (2) of this
Section 4.2, the Company shall have delivered to the Trustee an Opinion
of Counsel stating that (i) the Company has received from the Internal
Revenue Service a letter ruling, or there has been published by the
Internal Revenue Service a Revenue Ruling, or (ii) since the date of
execution of this Indenture, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of such
Outstanding Securities and any Coupons appertaining thereto will not
recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred.
(e) In the case of an election under clause (3) of this
Section 4.2, the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders of such Outstanding
Securities and any Coupons appertaining thereto will not recognize
income, gain or loss for Federal income tax purposes as a result of
such covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that, after the 123rd day after the
date of deposit, all money and Government Obligations (or other
property as may be provided pursuant to Section 3.1) (including the
proceeds thereof) deposited or caused to be deposited with the Trustee
(or other qualifying trustee) pursuant to this clause (4) to be held in
trust will not be subject to any case or proceeding (whether voluntary
or involuntary) in respect of the Company under any Federal or state
bankruptcy, insolvency, reorganization or other similar law, or any
decree or order for relief in respect of the Company issued in
connection therewith.
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance or covenant defeasance under
clause (2) or (3) of this Section 4.2 (as the case may be) have been
complied with.
(h) Notwithstanding any other provisions of this Section
4.2(4), such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or
limitations which may be imposed on the Company in connection therewith
pursuant to Section 3.1.
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(5) Unless otherwise specified in or pursuant to this Indenture or
any Security, if, after a deposit referred to in Section 4.2(4)(a) has been
made, (a) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 3.1 or the terms of such
Security to receive payment in a Currency other than that in which the deposit
pursuant to Section 4.2(4)(a) has been made in respect of such Security, or (b)
a Conversion Event occurs in respect of the Foreign Currency in which the
deposit pursuant to Section 4.2(4)(a) has been made, the indebtedness
represented by such Security and any Coupons appertaining thereto shall be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of (and premium, if any), and interest, if any, on, and
Additional Amounts, if any, with respect to, such Security as the same becomes
due out of the proceeds yielded by converting (from time to time as specified
below in the case of any such election) the amount or other property deposited
in respect of such Security into the Currency in which such Security becomes
payable as a result of such election or Conversion Event based on (x) in the
case of payments made pursuant to clause (a) above, the applicable market
exchange rate for such Currency in effect on the second Business Day prior to
each payment date, or (y) with respect to a Conversion Event, the applicable
market exchange rate for such Foreign Currency in effect (as nearly as feasible)
at the time of the Conversion Event.
The Company shall pay and indemnify the Trustee (or other qualifying
trustee, collectively for purposes of this Section 4.2(5) and Section 4.3, the
"Trustee") against any tax, fee or other charge, imposed on or assessed against
the Government Obligations deposited pursuant to this Section 4.2 or the
principal or interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of such
Outstanding Securities and any Coupons appertaining thereto.
Anything in this Section 4.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Obligations (or other property and any proceeds
therefrom) held by it as provided in clause (4) of this Section 4.2 which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect a defeasance or covenant defeasance, as applicable, in accordance with
this Section 4.2.
Section 4.3. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money and Government Obligations (or other property as may be provided pursuant
to Section 3.1) (including the proceeds thereof) deposited with the Trustee
pursuant to Section 4.1 or 4.2 in respect of any Outstanding Securities of any
series and any Coupons appertaining thereto shall be held in trust and applied
by the Trustee, in accordance with the provisions of such Securities and any
Coupons appertaining thereto and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Holders of such Securities and any
Coupons appertaining thereto of all sums due and to
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become due thereon in respect of principal (and premium, if any) and interest
and Additional Amounts, if any; but such money and Government Obligations need
not be segregated from other funds except to the extent required by law.
ARTICLE 5
REMEDIES
Section 5.1. Events of Default.
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body),
unless such event is specifically deleted or modified in or pursuant to the
supplemental indenture, Board Resolution or Officers' Certificate establishing
the terms of such Series pursuant to this Indenture:
(1) default in the payment of any interest on any Security of such
series, or any Additional Amounts payable with respect thereto, when such
interest becomes or such Additional Amounts become due and payable, and
continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of or any premium on
any Security of such series, or any Additional Amounts payable with respect
thereto, when such principal or premium becomes or such Additional Amounts
become due and payable at their Maturity; or
(3) default in the deposit of any sinking fund payment when and as
due by the terms of a Security of such series; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture or the Securities (other than a
covenant or warranty a default in the performance or the breach of which is
elsewhere in this Section specifically dealt with or which has been expressly
included in this Indenture solely for the benefit of a series of Securities
other than such series), and continuance of such default or breach for a period
of 60 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of such series, a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(5) if any event of default as defined in any mortgage, indenture
or instrument under which there may be issued, or by which there may be secured
or evidenced, any Debt of the Company or any Subsidiary, whether such Debt now
exists or shall hereafter be created, shall
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happen and shall result in such Debt in principal amount in excess of
[$__,000,000] becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable, and such acceleration shall not
be rescinded or annulled within a period of 10 days after there shall have been
given, by registered or certified mail, to the Company or any Subsidiary by the
Trustee or to the Company or any Subsidiary and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of such series, a
written notice specifying such event of default and requiring the Company or any
Subsidiary to cause such acceleration to be rescinded or annulled or to cause
such Debt to be discharged and stating that such notice is a "Notice of Default"
hereunder; or
(6) the Company or any Subsidiary shall fail within 60 days to
pay, bond or otherwise discharge any uninsured judgment or court order for the
payment of money in excess of [$__,000,000], which is not stayed on appeal or is
not otherwise being appropriately contested in good faith; or
(7) the entry by a court having competent jurisdiction of:
(a) a decree or order for relief in respect of the
Company or any Subsidiary in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law
and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or
(b) a decree or order adjudging the Company or any
Subsidiary to be insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Company
or any Subsidiary and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(c) a final and non-appealable order appointing a
custodian, receiver, liquidator, assignee, trustee or other similar
official of the Company or any Subsidiary or of any substantial part of
the property of the Company or any Subsidiary, or ordering the winding
up or liquidation of the affairs of the Company or any Subsidiary; or
(8) the commencement by the Company or any Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of a voluntary proceeding seeking to be adjudicated
insolvent or the consent by the Company or any Subsidiary to the entry of a
decree or order for relief in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any insolvency proceedings against it, or the filing by the
Company or any Subsidiary of a petition or answer or consent seeking
reorganization, arrangement, adjustment or composition of the Company or any
Subsidiary or relief under any applicable law, or the consent by the Company or
any Subsidiary to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee or similar
official of the Company or any Subsidiary or any substantial part of the
property of the Company or any Subsidiary or the making
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by the Company or any Subsidiary of an assignment for the benefit of creditors,
or the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action; or
(9) any other Event of Default provided in or pursuant to this
Indenture with respect to Securities of such series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the
time Outstanding (other than an Event of Default specified in clause (7) or (8)
of Section 5.1) occurs and is continuing, then the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities of such series
may declare the principal of all the Securities of such series, or such lesser
amount as may be provided for in the Securities of such series, to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the Holders), and upon any such declaration such principal or such
lesser amount shall become immediately due and payable.
If an Event of Default specified in clause (7) or (8) of Section 5.1
occurs, all unpaid principal of and accrued interest on the Outstanding
Securities of that series (or such lesser amount as may be provided for in the
Securities of such series) shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of any Security of that series.
At any time after a declaration of acceleration with respect to the
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of not less than a majority in principal amount of
the Outstanding Securities of such series, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum of
money sufficient to pay
(a) all overdue installments of any interest on and
Additional Amounts with respect to all Securities of such series and
any Coupon appertaining thereto,
(b) the principal of and any premium on any Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon and any Additional Amounts with
respect thereto at the rate or rates borne by or provided for in such
Securities,
(c) to the extent that payment of such interest or
Additional Amounts is lawful, interest upon overdue installments of any
interest and Additional Amounts at the rate or rates borne by or
provided for in such Securities, and
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(d) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel and all other amounts due the
Trustee under Section 6.6; and
(2) all Events of Default with respect to Securities of such
series, other than the non-payment of the principal of, any premium and interest
on, and any Additional Amounts with respect to Securities of such series which
shall have become due solely by such declaration of acceleration, shall have
been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any installment of interest
on or any Additional Amounts with respect to any Security or any Coupon
appertaining thereto when such interest or Additional Amounts shall have become
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of or any
premium on any Security or any Additional Amounts with respect thereto at their
Maturity,
the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities and any Coupons appertaining thereto,
the whole amount of money then due and payable with respect to such Securities
and any Coupons appertaining thereto, with interest upon the overdue principal,
any premium and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installments of interest and Additional Amounts at
the rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount of money as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due to the Trustee under Section 6.6.
If the Company fails to pay the money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and any Coupons
appertaining thereto and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of the Company or any other
obligor upon such Securities and any Coupons appertaining thereto, wherever
situated.
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If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
and any Coupons appertaining thereto by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or such Securities or in aid of the exercise of any power granted
herein or therein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities of any series or the property of the Company or such other obligor or
their creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of any overdue principal, premium, interest or
Additional Amounts) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount, or
such lesser amount as may be provided for in the Securities of any
applicable series, of the principal and any premium, interest and
Additional Amounts owing and unpaid in respect of the Securities and
any Coupons appertaining thereto and to file such other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents or
counsel) and of the Holders of Securities or any Coupons appertaining
thereto allowed in such judicial proceeding, and
(2) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities or any Coupons to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders of Securities or any Coupons, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any other amounts due the
Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or any Coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or Coupons or the
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rights of any Holder thereof, or to authorize the Trustee to vote in respect of
the claim of any Holder of a Security or any Coupon in any such proceeding.
Section 5.5. Trustee May Enforce Claims without Possession of
Securities or Coupons.
All rights of action and claims under this Indenture or any of the
Securities or Coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or Coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery or judgment, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, shall be for the ratable benefit of each and every Holder of the
Securities or Coupons in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, or any
premium, interest or Additional Amounts, upon presentation of the Securities or
Coupons, or both, as the case may be, and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.6;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities and any Coupons for principal and any premium, interest
and Additional Amounts in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority
of any kind, according to the aggregate amounts due and payable on such
Securities and Coupons for principal and any premium, interest and
Additional Amounts, respectively;
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
Section 5.7. Limitations on Suits.
No Holder of any Security of any series or any Coupons appertaining
thereto shall have any right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
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(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default with respect to the
Securities of such series;
(2) the Holders of not less than 25% in principal amount
of the Outstanding Securities of such series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
such indemnity as is reasonably satisfactory to it against the costs,
expenses and liabilities to be incurred in compliance with such
request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding Securities of such
series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other such Holders or Holders of Securities of any other series, or to
obtain or to seek to obtain priority or preference over any other Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal and
any Premium, Interest and Additional Amounts.
Notwithstanding any other provision in this Indenture, the Holder of
any Security or Coupon shall have the right, which is absolute and
unconditional, to receive payment of the principal of, any premium and (subject
to Sections 3.5 and 3.7) interest on, and any Additional Amounts with respect to
such Security or payment of such Coupon, as the case may be, on the respective
Stated Maturity or Maturities therefor specified in such Security or Coupon (or,
in the case of redemption, on the Redemption Date or, in the case of repayment
at the option of such Holder if provided in or pursuant to this Indenture, on
the date such repayment is due) and to institute suit for the enforcement of any
such payment, and such right shall not be impaired without the consent of such
Holder.
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Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security or a Coupon has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and each such Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and each such Holder shall continue as though no such proceeding had
been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities or Coupons in the last
paragraph of Section 3.6, no right or remedy herein conferred upon or reserved
to the Trustee or to each and every Holder of a Security or a Coupon is intended
to be exclusive of any other right or remedy, and every right and remedy, to the
extent permitted by law, shall be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not, to the extent permitted by law, prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security or
Coupon to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to any Holder of a Security or a Coupon may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by such Holder, as the case may be.
Section 5.12. Control by Holders of Securities.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Securities of such series and any Coupons appertaining thereto, provided that
(1) such direction shall not be in conflict with any rule
of law or with this Indenture or with the Securities of such series,
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(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and
(3) such direction is not unduly prejudicial to the
rights of the other Holders of Securities of such series not joining in
such action.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series on behalf of the Holders of all the
Securities of such series and any Coupons appertaining thereto may waive any
past default hereunder with respect to such series and its consequences, except
a default
(1) in the payment of the principal of, any premium or
interest on, or any Additional Amounts with respect to, any Security of
such series or any Coupons appertaining thereto, or
(2) in respect of a covenant or provision hereof which
under Article 9 cannot be modified or amended without the consent of
the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.14. Waiver of Usury, Stay or Extension Laws.
The Company covenants that (to the extent that it may lawfully do so)
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company expressly waives (to the
extent that it may lawfully do so) all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.15. Undertaking for Costs
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of
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undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 5.15 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of
Outstanding Securities of any series, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of (or premium, if any) or
interest, if any, on or Additional Amounts, if any, with respect to any
Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on or after the Redemption Date, and,
in the case of repayment, on or after the date for repayment) or for the
enforcement of the right, if any, to convert or exchange any Security into
Common Stock or other securities in accordance with its terms.
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Rights of Trustee.
Subject to Sections 315(a) through 315(d) of the Trust Indenture Act:
(1) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon or other paper
or document reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or a
Company Order (in each case, other than delivery of any Security,
together with any Coupons appertaining thereto, to the Trustee for
authentication and delivery pursuant to Section 3.3 which shall be
sufficiently evidenced as provided therein) and any resolution of the
Board of Directors may be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence shall be herein specifically prescribed)
may, in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel of its
selections and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection
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in respect of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by or pursuant to this
Indenture at the request or direction of any of the Holders of
Securities of any series or any Coupons appertaining thereto pursuant
to this Indenture, unless such Holders shall have offered to the
Trustee such security or indemnity as is reasonably satisfactory to it
against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, coupon or other paper or
document, but the Trustee, in its discretion, may but shall not be
obligated to make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to
examine, during business hours and upon reasonable notice, the books,
records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(8) the Trustee shall not be liable for any action taken
or error of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved that the
Trustee was negligent, acted in bad faith or engaged in willful
misconduct;
(9) the Authenticating Agent, Paying Agent, and Security
Registrar shall have the same protections as the Trustee set forth
hereunder;
(10) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with an Act of the Holders hereunder, and, to the extent not
so provided herein, with respect to any act requiring the Trustee to
exercise its own discretion, relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture or any Securities, unless it shall be proved that, in
connection with any such action taken, suffered or omitted or any such
act, the Trustee was negligent, acted in bad faith or engaged in
willful misconduct;
(11) NO PROVISION OF THIS INDENTURE SHALL REQUIRE THE
TRUSTEE TO EXPEND OR RISK ITS OWN FUNDS OR OTHERWISE INCUR ANY FINANCIAL
LIABILITY IN THE PERFORMANCE OF ANY OF ITS DUTIES HEREUNDER, OR IN THE EXERCISE
OF ANY OF ITS RIGHTS OR POWERS, IF IT SHALL HAVE REASONABLE GROUNDS FOR
BELIEVING THAT REPAYMENT OF SUCH FUNDS OR ADEQUATE INDEMNITY AGAINST SUCH RISK
OR LIABILITY IS NOT REASONABLY ASSURED TO IT; AND
(12) THE TRUSTEE SHALL NOT BE DEEMED TO HAVE NOTICE OF
ANY EVENT OF DEFAULT UNLESS A RESPONSIBLE OFFICER OF THE TRUSTEE HAS ACTUAL
KNOWLEDGE THEREOF OR WRITTEN NOTICE OF ANY EVENT WHICH IS IN FACT SUCH A
DEFAULT IS RECEIVED BY THE TRUSTEE AT THE CORPORATE TRUST OFFICE, AND SUCH
NOTICE REFERENCES THE SECURITIES AND THIS INDENTURE.
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Section 6.2. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit by mail to
all Holders of Securities of such series entitled to receive reports pursuant to
Section 7.3(3), notice of such default hereunder actually known to a Responsible
Officer of the Trustee, unless such default shall have been cured or waived;
provided, however, that, except in the case of a default in the payment of the
principal of (or premium, if any), or interest, if any, on, or Additional
Amounts or any sinking fund or purchase fund installment with respect to, any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the best interest of
the Holders of Securities and Coupons of such series; and provided, further,
that in the case of any default of the character specified in Section 5.1(5)
with respect to Securities of such series, no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default with respect to
Securities of such series.
Section 6.3. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, and in any Coupons shall be taken as
the statements of the Company and neither the Trustee nor any Authenticating
Agent assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or the Coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. Neither the Trustee
nor any Authenticating Agent shall be accountable for the use or application by
the Company of the Securities or the proceeds thereof.
Section 6.4. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other Person that may be an agent of the Trustee or the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the
Trust Indenture Act, may otherwise deal with the Company with the same rights it
would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other Person.
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Section 6.5. Money Held in Trust.
Except as provided in Section 4.3 and Section 10.3, money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed to in writing with the Company.
Section 6.6. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time SUCH
COMPENSATION AS THE COMPANY AND THE TRUSTEE SHALL FROM TIME TO TIME
AGREE IN WRITING compensation for all services rendered by the Trustee
hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture or arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's
negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor
Trustee and its agents, officers, directors and employees for, and
to hold them harmless against, any and all loss, liability, damage,
claim or expense, including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or bad faith on
their part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs
and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of their powers or
duties hereunder, except to the extent that any such loss,
liability or expense was due to the Trustee's negligence or bad faith.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities of any
series upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of, and premium or
interest on or any Additional Amounts with respect to Securities or any Coupons
appertaining thereto.
To the extent permitted by law, any compensation or expense incurred by
the Trustee after a default specified in or pursuant to Section 5.1 is intended
to constitute an expense of administration under any then applicable bankruptcy
or insolvency law. "Trustee" for purposes of this Section 6.6 shall include any
predecessor Trustee but the negligence or bad faith of any Trustee shall not
affect the rights of any other Trustee under this Section 6.6.
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The provisions of this Section 6.6 shall survive the satisfaction and
discharge of this Indenture or the earlier resignation or removal of the Trustee
and shall apply with equal force and effect to the Trustee in its capacity as
Authenticating Agent, Paying Agent or Security Registrar.
Section 6.7. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, that is eligible under Section
310(a)(1) of the Trust Indenture Act to act as trustee under an indenture
qualified under the Trust Indenture Act and that has a combined capital and
surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture
Act) of at least $50,000,000, and that is subject to supervision or examination
by Federal or state authority. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.8. Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 6.9.
(2) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 6.9 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition,
AT THE EXPENSE OF THE COMPANY, any court of competent jurisdiction for the
appointment of a successor Trustee with respect to such series.
(3) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and the
Company. IF THE INSTRUMENT OF ACCEPTANCE BY A SUCCESSOR TRUSTEE REQUIRED BY
SECTION 6.9 SHALL NOT HAVE BEEN DELIVERED TO THE TRUSTEE WITHIN 30 DAYS AFTER
THE GIVING OF SUCH NOTICE OF REMOVAL, THE TRUSTEE BEING REMOVED MAY PETITION,
AT THE EXPENSE OF THE COMPANY, ANY COURT OF COMPETENT JURISDICTION FOR THE
APPOINTMENT OF A SUCCESSOR TRUSTEE WITH RESPECT TO SUCH SERIES.
(4) If at any time:
(a) the Trustee shall fail to comply with the obligations
imposed upon it under Section 310(b) of the Trust Indenture Act with
respect to Securities of any series after written request therefor by
the Company or any Holder of a Security of such series who has been a
bona fide Holder of a Security of such series for at least six months,
or
(b) the Trustee shall cease to be eligible under Section
6.7 and shall fail to resign after written request therefor by the
Company or any such Holder, or
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(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee with respect to all Securities or the Securities of such
series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder
of a Security who has been a bona fide Holder of a Security of such series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee with
respect to all Securities of such series and the appointment of a successor
Trustee or Trustees.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by or pursuant to
a Board Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of such series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall comply with the
applicable requirements of Section 6.9. If, within one year after such
resignation, removal or incapacity, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
6.9, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to the Securities of any series shall have
been so appointed by the Company or the Holders of Securities and accepted
appointment in the manner required by Section 6.9, any Holder of a Security who
has been a bona fide Holder of a Security of such series for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.
(6) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Registered Securities, if any, of such series as their names and
addresses appear in the Security Register and, if Securities of such series are
issued as Bearer Securities, by publishing notice of such event once in an
Authorized Newspaper in each Place of Payment located outside the United States.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
(7) In no event shall any retiring Trustee be liable for the acts or
omissions of any successor Trustee hereunder.
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Section 6.9. Acceptance of Appointment by Successor.
(1) Upon the appointment hereunder of any successor Trustee with
respect to all Securities, such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties hereunder of the retiring Trustee; but, on the request
of the Company or such successor Trustee, such retiring Trustee, upon payment of
its charges, shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and,
subject to Section 10.3, shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder, subject nevertheless to its claim, if any, provided for in Section
6.6.
(2) Upon the appointment hereunder of any successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and such successor Trustee shall execute and deliver an
indenture supplemental hereto wherein each successor Trustee shall accept such
appointment and which (1) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, such successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (3) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust, that each such Trustee
shall be trustee of a trust or trusts hereunder separate and apart from any
trust or trusts hereunder administered by any other such Trustee and that no
Trustee shall be responsible for any notice given to, or received by, or any act
or failure to act on the part of any other Trustee hereunder, and, upon the
execution and delivery of such supplemental indenture, the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein, such retiring Trustee shall have no further responsibility for the
exercise of rights and powers or for the performance of the duties and
obligations vested in the Trustee under this Indenture with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates other than as hereinafter expressly set forth, and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to which the appointment
of such successor Trustee relates; but, on request of the Company or such
successor Trustee, such retiring Trustee, upon payment of its charges with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates and subject to Section 10.3 shall duly assign,
transfer and deliver to such successor Trustee, to the
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extent contemplated by such supplemental indenture, the property and money held
by such retiring Trustee hereunder with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates, subject
to its claim, if any, provided for in Section 6.6.
(3) Upon request of any Person appointed hereunder as a successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts referred to in paragraph (1) or (2) of this Section , as the
case may be.
(4) No Person shall accept its appointment hereunder as a successor
Trustee unless at the time of such acceptance such successor Person shall be
qualified and eligible under this Article.
Section 6.10. Merger, Conversion, Consolidation or Succession to
Business.
Any Corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated
but not delivered by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
Section 6.11. Appointment of Authenticating Agent.
The Trustee may appoint one or more Authenticating Agents acceptable to
the Company with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of that or
those series issued upon original issue, exchange, registration of transfer,
partial redemption or partial repayment or pursuant to Section 3.6, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent.
Each Authenticating Agent must be acceptable to the Company and, except
as provided in or pursuant to this Indenture, shall at all times be a
corporation that would be permitted by the Trust Indenture Act to act as trustee
under an indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has
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a combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $50,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section , it shall resign immediately in the manner and with
the effect specified in this Section .
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent,
shall be the successor of such Authenticating Agent hereunder, provided such
Corporation shall be otherwise eligible under this Section , without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section , the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall (i) mail written notice
of such appointment by first-class mail, postage prepaid, to all Holders of
Registered Securities, if any, of the series with respect to which such
Authenticating Agent shall serve, as their names and addresses appear in the
Security Register, and (ii) if Securities of the series are issued as Bearer
Securities, publish notice of such appointment at least once in an Authorized
Newspaper in the place where such successor Authenticating Agent has its
principal office if such office is located outside the United States. Any
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section .
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
The provisions of Sections 3.8, 6.3 and 6.4 shall be applicable to each
Authenticating Agent.
If an Authenticating Agent is appointed with respect to one or more
series of Securities pursuant to this Section , the Securities of such series
may have endorsed thereon, in addition to or in lieu of the Trustee's
certificate of authentication, an alternate certificate of authentication in
substantially the following form:
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This is one of the Securities of the series designated herein referred
to in the within-mentioned Indenture.
The Bank of New York,
as Trustee
By__________________________________________
as Authenticating Agent
By__________________________________________
Authorized Officer
If all of the Securities of any series may not be originally issued at
one time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested in writing (which writing need not be
accompanied by or contained in an Officers' Certificate by the Company), shall
appoint in accordance with this Section an Authenticating Agent having an office
in a Place of Payment designated by the Company with respect to such series of
Securities.
ARTICLE 7
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
In accordance with Section 312(a) of the Trust Indenture Act, the
Company shall furnish or cause to be furnished to the Trustee
(1) semi-annually with respect to Securities of each series not
later than May 15 and November 15 of the year or upon such other dates
as are set forth in or pursuant to the Board Resolution or indenture
supplemental hereto authorizing such series, a list, in each case in
such form as the Trustee may reasonably require, of the names and
addresses of Holders as of the applicable date, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished,
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provided, however, that so long as the Trustee is the Security Registrar no such
list shall be required to be furnished.
Section 7.2. Preservation of Information; Communications to Holders.
The Trustee shall comply with the obligations imposed upon it pursuant
to Section 312 of the Trust Indenture Act.
Every Holder of Securities or Coupons, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company, the
Trustee, any Paying Agent or any Security Registrar shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Holders of Securities in accordance with Section 312(c) of the Trust
Indenture Act, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under Section 312(b) of the Trust Indenture
Act.
Section 7.3. Reports by Trustee.
(1) Within 60 days after April 15 of each year commencing with the
first April 15 following the first issuance of Securities pursuant to
Section 3.1, if required by Section 313(a) of the Trust Indenture Act, the
Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a
brief report dated as of such April 15 with respect to any of the events
specified in said Section 313(a) which may have occurred since the later of the
immediately preceding April 15 and the date of this Indenture.
(2) The Trustee shall transmit the reports required by Section 313(a)
of the Trust Indenture Act at the times specified therein.
(3) Reports pursuant to this Section shall be transmitted in the manner
and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture
Act.
Section 7.4. Reports by Company.
The Company, pursuant to Section 314(a) of the Trust Indenture Act,
shall:
(1) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
as amended; or, if the Company is not required to file information, documents or
reports pursuant
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to either of said Sections , then it shall file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time to
time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company,
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit within 30 days after the filing thereof with the Trustee,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, such summaries of any information, documents and reports required
to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as
may be required by rules and regulations prescribed from time to time by the
Commission.
ARTICLE 8
CONSOLIDATION, MERGER AND SALES
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
(whether or not affiliated with the Company), or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
other Person (whether or not affiliated with the Company), and the Company shall
not permit any other Person (whether or not affiliated with the Company) to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to the
Company; unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company as an entirety or substantially as an entirety shall be a Corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume, by an indenture
(or indentures, if at such time there is more than one Trustee) supplemental
hereto, executed by the successor Person and delivered to the Trustee the due
and punctual payment of the principal of, any premium and interest on and any
Additional Amounts with respect to all the Securities and the performance of
every obligation in this Indenture and the Outstanding Securities on the part of
the Company to be performed or
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observed and shall provide for conversion or exchange rights in accordance with
the provisions of the Securities of any series that are convertible or
exchangeable into Common Stock or other securities;
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default or event which,
after notice or lapse of time, or both, would become an Event of Default, shall
have occurred and be continuing; and
(3) either the Company or the successor Person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
Section 8.2. Successor Person Substituted for Company.
Upon any consolidation by the Company with or merger of the Company
into any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety to any Person in accordance
with Section 8.1, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; and thereafter, except in
the case of a lease, the predecessor Person shall be released from all
obligations and covenants under this Indenture, the Securities and the Coupons.
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders of Securities or Coupons, the
Company (when authorized by or pursuant to a Board Resolution) and the Trustee,
at any time and from time to time, may enter into one or more indentures
supplemental hereto, for any of the following purposes:
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(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (as shall be specified in such
supplemental indenture or indentures) or to surrender any right or power herein
conferred upon the Company; or
(3) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to change or
eliminate any restrictions on the payment of principal of, any premium or
interest on or any Additional Amounts with respect to Securities, to permit
Bearer Securities to be issued in exchange for Registered Securities, to permit
Bearer Securities to be exchanged for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided any such action shall not adversely affect the
interests of the Holders of Outstanding Securities of any series or any Coupons
appertaining thereto in any material respect; or
(4) to establish the form or terms of Securities of any series and any
Coupons appertaining thereto as permitted by Sections 2.1 and 3.1; or
(5) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section 6.9;
or
(6) to cure any ambiguity or to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture which shall not adversely affect the interests of the
Holders of Securities of any series then Outstanding or any Coupons appertaining
thereto in any material respect; or
(7) to add to, delete from or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issue,
authentication and delivery of Securities, as herein set forth; or
(8) to add any additional Events of Default with respect to all or any
series of Securities (as shall be specified in such supplemental indenture); or
(9) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Article 4, provided that any
such action shall not adversely affect the interests of any Holder of an
Outstanding Security of such series and any Coupons appertaining thereto or any
other Outstanding Security or Coupon in any material respect; or
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(10) to secure the Securities pursuant to Section 10.5, 10.6 or
otherwise; or
(11) to make provisions with respect to conversion or exchange rights
of Holders of Securities of any series; or
(12) to amend or supplement any provision contained herein or in any
supplemental indenture, provided that no such amendment or supplement shall
materially adversely affect the interests of the Holders of any Securities then
Outstanding.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company (when authorized by or pursuant to a Company's Board
Resolution) and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture or of the Securities of such series; provided, however,
that no such supplemental indenture, without the consent of the Holder of each
Outstanding Security affected thereby, shall
(1) change the Stated Maturity of the principal of, or any premium or
installment of interest on or any Additional Amounts with respect to, any
Security, or reduce the principal amount thereof or the rate (or modify the
calculation of such rate) of interest thereon or any Additional Amounts with
respect thereto, or any premium payable upon the redemption thereof or
otherwise, or change the obligation of the Company to pay Additional Amounts
pursuant to Section 10.4 (except as contemplated by Section 8.1(1) and permitted
by Section 9.1(1)), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2 or the amount
thereof provable in bankruptcy pursuant to Section 5.4, change the redemption
provisions or adversely affect the right of repayment at the option of any
Holder as contemplated by Article 13, or change the Place of Payment, Currency
in which the principal of, any premium or interest on, or any Additional Amounts
with respect to any Security is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date or, in the case
of repayment at the option of the Holder, on or after the date for repayment),
or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
reduce the requirements of Section 15.4 for quorum or voting, or
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(3) modify any of the provisions of this Section , Section 5.13 or
Section 10.8, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby, or
(4) make any change that adversely affects the right to convert or
exchange any Security into or for Common Stock or other securities in accordance
with its terms.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which shall have been included expressly and
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Section 9.3. Execution of Supplemental Indentures.
As a condition to executing, or accepting the additional trusts created
by, any supplemental indenture permitted by this Article or the modifications
thereby of the trust created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture and an
Officers' Certificate stating that all conditions precedent to the execution of
such supplemental indenture have been fulfilled. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Security theretofore or thereafter authenticated and delivered hereunder
and of any Coupon appertaining thereto shall be bound thereby.
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Section 9.5. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
Section 9.6. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.7. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 9.2, the Company shall transmit to
the Holders of Outstanding Securities of any series affected thereby a notice
setting forth the substance of such supplemental indenture.
ARTICLE 10
COVENANTS
Section 10.1. Payment of Principal, any Premium, Interest and
Additional Amounts.
The Company covenants and agrees for the benefit of the Holders of the
Securities of each series that it will duly and punctually pay the principal of,
any premium and interest on and any Additional Amounts with respect to the
Securities of such series in accordance with the terms thereof, any Coupons
appertaining thereto and this Indenture. Any interest due on any Bearer Security
on or before the Maturity thereof, and any Additional Amounts payable with
respect to such interest, shall be payable only upon presentation and surrender
of the Coupons appertaining thereto for such interest as they severally mature.
Section 10.2. Maintenance of Office or Agency.
The Company shall maintain in each Place of Payment for any series of
Securities an Office or Agency where Securities of such series (but not Bearer
Securities, except as otherwise
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provided below, unless such Place of Payment is located outside the United
States) may be presented or surrendered for payment, where Securities of such
series may be surrendered for registration of transfer or exchange, where
Securities of such series that are convertible or exchangeable may be
surrendered for conversion or exchange, and where notices and demands to or upon
the Company in respect of the Securities of such series relating thereto and
this Indenture may be served. If Securities of a series are issuable as Bearer
Securities, the Company shall maintain, subject to any laws or regulations
applicable thereto, an Office or Agency in a Place of Payment for such series
which is located outside the United States where Securities of such series and
any Coupons appertaining thereto may be presented and surrendered for payment;
provided, however, that if the Securities of such series are listed on The Stock
Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg
Stock Exchange or any other stock exchange located outside the United States and
such stock exchange shall so require, the Company shall maintain a Paying Agent
in London, Luxembourg or any other required city located outside the United
States, as the case may be, so long as the Securities of such series are listed
on such exchange. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such Office or Agency. If at
any time the Company shall fail to maintain any such required Office or Agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, except that Bearer Securities of such
series and any Coupons appertaining thereto may be presented and surrendered for
payment at the place specified for the purpose with respect to such Securities
as provided in or pursuant to this Indenture, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
Except as otherwise provided in or pursuant to this Indenture, no
payment of principal, premium, interest or Additional Amounts with respect to
Bearer Securities shall be made at any Office or Agency in the United States or
by check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, if
amounts owing with respect to any Bearer Securities shall be payable in Dollars,
payment of principal of, any premium or interest on and any Additional Amounts
with respect to any such Security may be made at the Corporate Trust Office of
the Trustee or any Office or Agency designated by the Company in the Borough of
Manhattan, The City of New York, if (but only if) payment of the full amount of
such principal, premium, interest or Additional Amounts at all offices outside
the United States maintained for such purpose by the Company in accordance with
this Indenture is illegal or effectively precluded by exchange controls or other
similar restrictions.
The Company may also from time to time designate one or more other
Offices or Agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an Office
or Agency in each Place of Payment for Securities of any series for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other Office or Agency. Unless otherwise provided in or pursuant to this
Indenture, the Company hereby designates as the Place
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of Payment for each series of Securities the Borough of Manhattan, The City of
New York, and initially appoints the Corporate Trust Office of the Trustee as
the Office or Agency of the Company in the Borough of Manhattan, The City of New
York for such purpose. The Company may subsequently appoint a different Office
or Agency in the Borough of Manhattan, The City of New York for the Securities
of any series.
Unless otherwise specified with respect to any Securities pursuant to
Section 3.1, if and so long as the Securities of any series (i) are denominated
in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long
as it is required under any other provision of this Indenture, then the Company
will maintain with respect to each such series of Securities, or as so required,
at least one exchange rate agent.
Section 10.3. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it shall, on or before each due date of the
principal of, any premium or interest on or Additional Amounts with respect to
any of the Securities of such series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum in the currency or currencies,
currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 3.1 for the Securities of such series) sufficient to pay the principal
or any premium, interest or Additional Amounts so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any
series of Securities, it shall, on or prior to each due date of the principal
of, any premium or interest on or any Additional Amounts with respect to any
Securities of such series, deposit with any Paying Agent a sum (in the currency
or currencies, currency unit or units or composite currency or currencies
described in the preceding paragraph) sufficient to pay the principal or any
premium, interest or Additional Amounts so becoming due, such sum to be held in
trust for the benefit of the Persons entitled thereto, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company shall cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section , that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of, any
premium or interest on or any Additional Amounts with respect to Securities of
such series in trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as provided in or
pursuant to this Indenture;
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(2) give the Trustee prompt written notice of any default by the
Company (or any other obligor upon the Securities of such series) in the making
of any payment of principal, any premium or interest on or any Additional
Amounts with respect to the Securities of such series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Except as otherwise provided herein or pursuant hereto, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, any premium or interest on or any
Additional Amounts with respect to any Security of any series or any Coupon
appertaining thereto and remaining unclaimed for two years after such principal
or any such premium or interest or any such Additional Amounts shall have become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Security or any Coupon appertaining thereto shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in an Authorized Newspaper in each Place of Payment for such
series or to be mailed to Holders of Registered Securities of such series, or
both, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication
or mailing nor shall it be later than two years after such principal and any
premium or interest or Additional Amounts shall have become due and payable, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 10.4. Additional Amounts.
If any Securities of a series provide for the payment of Additional
Amounts, the Company agrees to pay to the Holder of any such Security or any
Coupon appertaining thereto Additional Amounts as provided in or pursuant to
this Indenture or such Securities. Whenever in this Indenture there is
mentioned, in any context, the payment of the principal of or any premium or
interest on, or in respect of, any Security of any series or any Coupon or the
net proceeds received on the sale or exchange of any Security of any series,
such mention shall be deemed to include mention of the payment of Additional
Amounts provided by the terms of such series established hereby or pursuant
hereto to the extent that, in such context, Additional
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Amounts are, were or would be payable in respect thereof pursuant to such terms,
and express mention of the payment of Additional Amounts (if applicable) in any
provision hereof shall not be construed as excluding the payment of Additional
Amounts in those provisions hereof where such express mention is not made.
Except as otherwise provided in or pursuant to this Indenture or the
Securities of the applicable series, if the Securities of a series provide for
the payment of Additional Amounts, at least 10 days prior to the first Interest
Payment Date with respect to such series of Securities (or if the Securities of
such series shall not bear interest prior to Maturity, the first day on which a
payment of principal is made), and at least 10 days prior to each date of
payment of principal or interest if there has been any change with respect to
the matters set forth in the below-mentioned Officers' Certificate, the Company
shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if
other than the Trustee, an Officers' Certificate instructing the Trustee and
such Paying Agent or Paying Agents whether such payment of principal of and
premium, if any, or interest on the Securities of such series shall be made to
Holders of Securities of such series or the Coupons appertaining thereto who are
United States Aliens without withholding for or on account of any tax,
assessment or other governmental charge described in the Securities of such
series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld
on such payments to such Holders of Securities or Coupons, and the Company
agrees to pay to the Trustee or such Paying Agent the Additional Amounts
required by the terms of such Securities. The Company covenants to indemnify the
Trustee and any Paying Agent for, and to hold them harmless against, any loss,
liability or expense reasonably incurred without negligence or bad faith on
their part arising out of or in connection with actions taken or omitted by any
of them in reliance on any Officers' Certificate furnished pursuant to this
Section .
Section 10.5. [To come]
Section 10.6. [To come]
Section 10.7. Corporate Existence.
Subject to Article 8, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Subsidiary and their respective rights (charter and
statutory) and franchises; provided, however, that the foregoing shall not
obligate the Company or any Subsidiary to preserve any such right or franchise
if the Company or any Subsidiary shall determine that the preservation thereof
is no longer desirable in the conduct of its business or the business of such
Subsidiary and that the loss thereof is not disadvantageous in any material
respect to any Holder.
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Section 10.8. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section [s 10.5, 10.6 or] 10.7 with
respect to the Securities of any series if before the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series, by Act of such Holders, either shall waive such
compliance in such instance or generally shall have waived compliance with such
term, provision or condition, but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
Section 10.9. Company Statement as to Compliance; Notice of Certain
Defaults.
(1) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, a written statement (which need not be contained in or
accompanied by an Officers' Certificate) signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company, stating that
(a) a review of the activities of the Company during such year
and of its performance under this Indenture has been made under his or
her supervision, and
(b) to the best of his or her knowledge, based on such review,
(a) the Company has complied with all the conditions and covenants
imposed on it under this Indenture throughout such year, or, if there
has been a default in the fulfillment of any such condition or
covenant, specifying each such default known to him or her and the
nature and status thereof, and (b) no event has occurred and is
continuing which is, or after notice or lapse of time or both would
become, an Event of Default, or, if such an event has occurred and is
continuing, specifying each such event known to him and the nature and
status thereof.
(2) The Company shall deliver to the Trustee, within five days after
the occurrence thereof, written notice of any Event of Default or any event
which after notice or lapse of time or both would become an Event of Default
pursuant to clause (4) of Section 5.1.
(3) The Trustee shall have no duty to monitor the Company's compliance
with the covenants contained in this Article 10 other than as specifically set
forth in this Section 10.9.
SECTION 10.10. CALCULATION OF ORIGINAL ISSUE DISCOUNT.
============== =======================================
THE COMPANY SHALL FILE WITH THE TRUSTEE PROMPTLY AT THE END OF EACH
CALENDAR YEAR (i) A WRITTEN NOTICE SPECIFYING THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT (INCLUDING DAILY RATES AND ACCRUAL PERIODS) ACCRUED ON THE ORIGINAL
ISSUE DISCOUNT SECURITIES OUTSTANDING AS OF THE END OF SUCH YEAR AND (ii) SUCH
OTHER SPECIFIC INFORMATION RELATING TO SUCH ORIGINAL ISSUE DISCOUNT AS MAY THEN
BE RELEVANT UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED FROM TIME TO
TIME.
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ARTICLE 11
REDEMPTION OF SECURITIES
Section 11.1. Applicability of Article.
Redemption of Securities of any series at the option of the Company as
permitted or required by the terms of such Securities shall be made in
accordance with the terms of such Securities and (except as otherwise provided
herein or pursuant hereto) this Article.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company of (a) less than all of the Securities of any series or (b) all
of the Securities of any series, with the same issue date, interest rate or
formula, Stated Maturity and other terms, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed.
Section 11.3. Selection by Trustee of Securities to be Redeemed.
If less than all of the Securities of any series with the same issue
date, interest rate or formula, Stated Maturity and other terms are to be
redeemed, the particular Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee from the Outstanding
Securities of such series not previously called for redemption, pro rata, by
lot or by such method as the Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions of the principal
amount of Registered Securities of such series; provided, however, that no such
partial redemption shall reduce the portion of the principal amount of a
Registered Security of such series not redeemed to less than the minimum
denomination for a Security of such series established herein or pursuant
hereto.
The Trustee shall promptly notify the Company and the Security
Registrar (if other than itself) in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to
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be redeemed only in part, to the portion of the principal of such Securities
which has been or is to be redeemed.
Unless otherwise specified in or pursuant to this Indenture or the
Securities of any series, if any Security selected for partial redemption is
converted into Common Stock or exchanged for other securities in part before
termination of the conversion or exchange right with respect to the portion of
the Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted or exchanged during a selection of Securities to be redeemed
shall be treated by the Trustee as Outstanding for the purpose of such
selection.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section
1.6, not less than 30 nor more than 60 days prior to the Redemption Date, unless
a shorter period is specified in the Securities to be redeemed, to the Holders
of Securities to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Registered Securities designated for
redemption as a whole or in part, or any defect in the notice to any such
Holder, shall not affect the validity of the proceedings for the redemption of
any other Securities or portion thereof.
Any notice that is mailed to the Holder of any Registered Securities in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder of such Security will receive,
without charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that, on the Redemption Date, the Redemption Price shall become due
and payable upon each such Security or portion thereof to be redeemed, and, if
applicable, that interest thereon shall cease to accrue on and after said date,
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(6) the place or places where such Securities, together (in the case of
Bearer Securities) with all Coupons appertaining thereto, if any, maturing after
the Redemption Date, are to be surrendered for payment of the Redemption Price
and any accrued interest and Additional Amounts pertaining thereto,
(7) that the redemption is for a sinking fund, if such is the case,
(8) that, unless otherwise specified in such notice, Bearer Securities
of any series, if any, surrendered for redemption must be accompanied by all
Coupons maturing subsequent to the date fixed for redemption or the amount of
any such missing Coupon or Coupons will be deducted from the Redemption Price,
unless security or indemnity satisfactory to the Company, the Trustee and any
Paying Agent is furnished,
(9) if Bearer Securities of any series are to be redeemed and no
Registered Securities of such series are to be redeemed, and if such Bearer
Securities may be exchanged for Registered Securities not subject to redemption
on the Redemption Date pursuant to Section 3.5 or otherwise, the last date, as
determined by the Company, on which such exchanges may be made,
(10) in the case of Securities of any series that are convertible into
Common Stock or exchangeable for other securities, the conversion or exchange
price or rate, the date or dates on which the right to convert or exchange the
principal of the Securities of such series to be redeemed will commence or
terminate and the place or places where such Securities may be surrendered for
conversion or exchange, and
(11) the CUSIP number or the Euroclear or the Cedel reference numbers
of such Securities, if any (or any other numbers used by a Depository to
identify such Securities).
A notice of redemption published as contemplated by Section 1.6 need
not identify particular Registered Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.5. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit, with
respect to the Securities of any series called for redemption pursuant to
Section 11.4, with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.3) an amount of money in the applicable Currency sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date, unless otherwise specified pursuant to Section 3.1 or in the
Securities of such series) any accrued
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interest on and Additional Amounts with respect thereto, all such Securities or
portions thereof which are to be redeemed on that date.
Section 11.6. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the Coupons for such
interest appertaining to any Bearer Securities so to be redeemed, except to the
extent provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all Coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with any accrued interest
and Additional Amounts to the Redemption Date; provided, however, that, except
as otherwise provided in or pursuant to this Indenture or the Bearer Securities
of such series, installments of interest on Bearer Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable only upon
presentation and surrender of Coupons for such interest (at an Office or Agency
located outside the United States except as otherwise provided in Section 10.2),
and provided, further, that, except as otherwise specified in or pursuant to
this Indenture or the Registered Securities of such series, installments of
interest on Registered Securities whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
Regular Record Dates therefor according to their terms and the provisions of
Section 3.7.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant Coupons maturing after the Redemption Date, such
Security may be paid after deducting from the Redemption Price an amount equal
to the face amount of all such missing Coupons, or the surrender of such missing
Coupon or Coupons may be waived by the Company and the Trustee if there be
furnished to them such security or indemnity as they may require to save each of
them and any Paying Agent harmless. If thereafter the Holder of such Security
shall surrender to the Trustee or any Paying Agent any such missing Coupon in
respect of which a deduction shall have been made from the Redemption Price,
such Holder shall be entitled to receive the amount so deducted; provided,
however, that any interest or Additional Amounts represented by Coupons shall be
payable only upon presentation and surrender of those Coupons at an Office or
Agency for such Security located outside of the United States except as
otherwise provided in Section 10.2.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium, until paid,
shall bear interest from the Redemption Date at the rate prescribed therefor in
the Security.
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Section 11.7. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at any Office or Agency for such Security (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Registered Security or Securities of the
same series, containing identical terms and provisions, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered. If a Security in global form is so surrendered, the Company shall
execute, and the Trustee shall authenticate and deliver to the U.S. Depository
or other Depository for such Security in global form as shall be specified in
the Company Order with respect thereto to the Trustee, without service charge, a
new Security in global form in a denomination equal to and in exchange for the
unredeemed portion of the principal of the Security in global form so
surrendered.
ARTICLE 12
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series, except as otherwise permitted or
required in or pursuant to this Indenture or any Security of such series issued
pursuant to this Indenture.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for by
the terms of Securities of such series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any series,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 12.2. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series and this Indenture.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of any series to be made pursuant to the
terms of such Securities (1) deliver Outstanding Securities of such series
(other than any of such Securities previously called
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for redemption or any of such Securities in respect of which cash shall have
been released to the Company), together in the case of any Bearer Securities of
such series with all unmatured Coupons appertaining thereto, and (2) apply as a
credit Securities of such series which have been redeemed either at the election
of the Company pursuant to the terms of such series of Securities or through the
application of permitted optional sinking fund payments pursuant to the terms of
such Securities, provided that such series of Securities have not been
previously so credited. Such Securities shall be received and credited for such
purpose by the Trustee at the Redemption Price specified in such Securities for
redemption through operation of the sinking fund and the amount of such sinking
fund payment shall be reduced accordingly. If, as a result of the delivery or
credit of Securities of any series in lieu of cash payments pursuant to this
Section 12.2, the principal amount of Securities of such series to be redeemed
in order to satisfy the remaining sinking fund payment shall be less than
$100,000, the Trustee need not call Securities of such series for redemption,
except upon Company Request, and such cash payment shall be held by the Trustee
or a Paying Agent and applied to the next succeeding sinking fund payment,
provided, however, that the Trustee or such Paying Agent shall at the request of
the Company from time to time pay over and deliver to the Company any cash
payment so being held by the Trustee or such Paying Agent upon delivery by the
Company to the Trustee of Securities of that series purchased by the Company
having an unpaid principal amount equal to the cash payment requested to be
released to the Company.
Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 75 days prior to each sinking fund payment date for any
series of Securities, the Company shall deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that series pursuant to Section 12.2, and the optional amount, if
any, to be added in cash to the next ensuing mandatory sinking fund payment, and
will also deliver to the Trustee any Securities to be so credited and not
theretofore delivered. If such Officers' Certificate shall specify an optional
amount to be added in cash to the next ensuing mandatory sinking fund payment,
the Company shall thereupon be obligated to pay the amount therein specified.
Not less than 45 days before each such sinking fund payment date the Trustee
shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 11.3 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company in the
manner provided in Section 11.4. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 11.6 and 11.7.
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ARTICLE 13
REPAYMENT AT THE OPTION OF HOLDERS
Section 13.1. Applicability of Article.
Securities of any series which are repayable at the option of the
Holders thereof before their Stated Maturity shall be repaid in accordance with
the terms of the Securities of such series. The repayment of any principal
amount of Securities pursuant to such option of the Holder to require repayment
of Securities before their Stated Maturity, for purposes of Section 3.9, shall
not operate as a payment, redemption or satisfaction of the Indebtedness
represented by such Securities unless and until the Company, at its option,
shall deliver or surrender the same to the Trustee with a directive that such
Securities be cancelled. Notwithstanding anything to the contrary contained in
this Section 13.1, in connection with any repayment of Securities, the Company
may arrange for the purchase of any Securities by an agreement with one or more
investment bankers or other purchasers to purchase such Securities by paying to
the Holders of such Securities on or before the close of business on the
repayment date an amount not less than the repayment price payable by the
Company on repayment of such Securities, and the obligation of the Company to
pay the repayment price of such Securities shall be satisfied and discharged to
the extent such payment is so paid by such purchasers.
ARTICLE 14
SECURITIES IN FOREIGN CURRENCIES
Section 14.1. Applicability of Article.
Whenever this Indenture provides for (i) any action by, or the
determination of any of the rights of, Holders of Securities of any series in
which not all of such Securities are denominated in the same Currency, or (ii)
any distribution to Holders of Securities, in the absence of any provision to
the contrary in the form of Security of any particular series or pursuant to
this Indenture or the Securities, any amount in respect of any Security
denominated in a Currency other than Dollars shall be treated for any such
action or distribution as that amount of Dollars that could be obtained for such
amount on such reasonable basis of exchange and as of the record date with
respect to Registered Securities of such series (if any) for such action,
determination of rights or distribution (or, if there shall be no applicable
record date, such other date reasonably proximate to the date of such action,
determination of rights or distribution) as the Company may specify in a written
notice to the Trustee.
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ARTICLE 15
MEETINGS OF HOLDERS OF SECURITIES
Section 15.1. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any series may be called at any
time and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided by this Indenture to be made, given or taken by Holders of Securities
of such series.
Section 15.2. Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of Securities
of any series for any purpose specified in Section 15.1, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or, if
Securities of such series have been issued in whole or in part as Bearer
Securities, in London or in such place outside the United States as the Trustee
shall determine. Notice of every meeting of Holders of Securities of any series,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 1.6, not less than 21 nor more than 180 days prior to the
date fixed for the meeting.
(2) In case at any time the Company (by or pursuant to a Board
Resolution) or the Holders of at least 10% in principal amount of the
Outstanding Securities of any series shall have requested the Trustee to call a
meeting of the Holders of Securities of such series for any purpose specified in
Section 15.1, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed
notice of or made the first publication of the notice of such meeting within 21
days after receipt of such request (whichever shall be required pursuant to
Section 1.6) or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Company or the Holders of Securities of such series in
the amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, The City of New York, or, if Securities of
such series are to be issued as Bearer Securities, in London for such meeting
and may call such meeting for such purposes by giving notice thereof as provided
in clause (1) of this Section .
Section 15.3. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing as proxy for
a Holder or Holders of one or more Outstanding Securities of such series by such
Holder or Holders. The only Persons who shall be
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entitled to be present or to speak at any meeting of Holders of Securities of
any series shall be the Persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 15.4. Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities of a series shall constitute a quorum for any meeting of
Holders of Securities of such series. In the absence of a quorum within 30
minutes after the time appointed for any such meeting, the meeting shall, if
convened at the request of Holders of Securities of such series, be dissolved.
In any other case the meeting may be adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such meeting. In the absence of a quorum at any reconvened meeting, such
reconvened meeting may be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such reconvened meeting. Notice of the reconvening of any adjourned meeting
shall be given as provided in Section 15.2(1), except that such notice need be
given only once not less than five days prior to the date on which the meeting
is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage, as provided above, of the principal amount
of the Outstanding Securities of such series which shall constitute a quorum.
Except as limited by the proviso to Section 9.2, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum is
present as aforesaid may be adopted only by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 9.2, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other Act which this Indenture expressly provides may
be made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Securities of a series
may be adopted at a meeting or an adjourned meeting duly reconvened and at which
a quorum is present as aforesaid by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Securities of such
series.
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the Coupons
appertaining thereto, whether or not such Holders were present or represented at
the meeting.
Notwithstanding the foregoing provisions of this Section 15.4, if any
action is to be taken at a meeting of Holders of Securities of any series with
respect to any request, demand authorization, direction, notice, consent, waiver
or other action that this Indenture expressly provides may be made, given or
taken by the Holders of a specified percentage in principal amount of all
Outstanding Securities affected thereby, or of the holders of such series and
one or more additional series:
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(i) there shall be no minimum quorum requirement for such meeting; and
(ii) the principal amount of the Outstanding Shares of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under this Indenture.
Section 15.5. Determination of Voting Rights; Conduct and Adjournment
of Meetings.
(1) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of such series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 1.4 and the
appointment of any proxy shall be proved in the manner specified in Section 1.4
or by having the signature of the person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 1.4 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 1.4 or other proof.
(2) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 15.2(2), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting.
(3) At any meeting, each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount of Securities of
such series held or represented by him; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding. The
chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.
(4) Any meeting of Holders of Securities of any series duly called
pursuant to Section 15.2 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
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Section 15.6. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in triplicate of all votes cast at the meeting. A record, at least in
triplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 15.2 and, if
applicable, Section 15.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
* * * * *
82
<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
HOMESIDE LENDING, INC.
By___________________________________________
Name:
Title:
The Bank of New York,
as Trustee
By__________________________________________
Name:
Title:
83
<PAGE> 92
STATE OF FLORIDA )
: SS.:
COUNTY OF JACKSONVILLE )
On the _____ day of __________, 1997, before me personally came
______________________________________________________, to me known, who, being
by me duly sworn, did depose and say that he is a _____________________________
of HomeSide Lending, Inc., a Florida corporation, one of the persons
described in and who executed the foregoing instrument and that he signed his
name thereto by authority of the Board of Directors of said Corporation.
_________________________________
Notary Public
[NOTARIAL SEAL]
84
<PAGE> 93
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1997, before me personally came
______________________________________________________, to me known, who, being
by me duly sworn, did depose and say that he is a ___________________________
of The Bank of New York, a banking corporation organized and existing under
the laws of the State of New York, one of the persons described in and who
executed the foregoing instrument; and that he signed his name thereto by
authority of the Board of Directors of said Corporation.
______________________________
Notary Public
[NOTARIAL SEAL]
85
<PAGE> 1
EXHIBIT 4.2
[FACE OF NOTE]
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITARY") (55 WATER STREET, NEW YORK, NEW YORK) TO THE
ISSUER HEREOF OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.(1)
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.(2)
REGISTERED CUSIP No.: PRINCIPAL AMOUNT:
No. FXR-
------- ----------- -----------------
<TABLE>
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTE
(Fixed Rate)
<S> <C> <C>
ORIGINAL ISSUE DATE: INTEREST RATE: % STATED MATURITY DATE:
INTEREST PAYMENT DATE(S) DEFAULT RATE: %
[ ] _______ and ______
[ ] Other:
INITIAL REDEMPTION INITIAL REDEMPTION ANNUAL REDEMPTION
DATE: PERCENTAGE: % PERCENTAGE
REDUCTION: %
OPTIONAL REPAYMENT [ ] CHECK IF AN ORIGINAL
DATE(S): ISSUE DISCOUNT NOTE
Issue Price: %
AUTHORIZED DENOMINATION:
[ ] $1,000 and integral
multiples thereof
[ ] Other:
ADDENDUM ATTACHED OTHER/ADDITIONAL PROVISIONS:
[ ] Yes
[ ] No
- --------------------------
<FN>
(1) This paragraph applies to global Notes only.
(2) This paragraph applies to global Notes only.
</TABLE>
<PAGE> 2
HOMESIDE LENDING, INC., a Florida corporation (the "Company," which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to [bullet], or registered
assigns, the principal sum of [bullet], on the Stated Maturity Date specified
above (or any Redemption Date or Repayment Date, each as defined on the reverse
hereof) (each such Stated Maturity Date, Redemption Date or Repayment Date
being hereinafter referred to as the "Maturity Date" with respect to the
principal repayable on such date) and to pay interest thereon, at the Interest
Rate per annum specified above, until the principal hereof is paid or duly made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the Default Rate per annum specified above on
any overdue principal, premium and/or interest. The Company will pay interest
in arrears on each Interest Payment Date, if any, specified above (each, an
"Interest Payment Date"), commencing with the first Interest Payment Date next
succeeding the Original Issue Date specified above, and on the Maturity Date;
PROVIDED, HOWEVER, that if the Original Issue Date occurs between a Record Date
(as defined below) and the next succeeding Interest Payment Date, interest
payments will commence on the second Interest Payment Date next succeeding the
Original Issue Date to the holder of this Note on the Record Date with respect
to such second Interest Payment Date. Interest on this Note will be computed on
the basis of a 360-day year of twelve 30-day months.
Interest on this Note will accrue from, and including, the immediately
preceding Interest Payment Date to which interest has been paid or duly provided
for (or from, and including, the Original Issue Date if no interest has been
paid or duly provided for) to, but excluding, the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period"). The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, subject to certain exceptions described herein, be paid to
the person in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the fifteenth calendar day (whether or
not a Business Day, as defined below) immediately preceding such Interest
Payment Date (the "Record Date"); PROVIDED, HOWEVER, that interest payable on
the Maturity Date will be payable to the person to whom the principal hereof and
premium, if any, hereon shall be payable. Any such interest not so punctually
paid or duly provided for ("Defaulted Interest") will forthwith cease to be
payable to the holder on any Record Date, and shall be paid to the person in
whose name this Note is registered at the close of business on a special record
date (the "Special Record Date") for the payment of such Defaulted Interest to
be fixed by the Trustee hereinafter referred to, notice whereof shall be given
to the holder of this Note by the Trustee not less than 10 calendar days prior
to such Special Record Date or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which this Note may be listed, and upon such notice as may be required by such
exchange, all as more fully provided for in the Indenture.
2
<PAGE> 3
Payment of principal, premium, if any, and interest in respect of this
Note due on the Maturity Date will be made in immediately available funds upon
presentation and surrender of this Note (and, with respect to any applicable
repayment of this Note, a duly completed election form as contemplated on the
reverse hereof) at the corporate trust office of the Trustee maintained for
that purpose in the Borough of Manhattan, The City of New York, currently
located at [bullet], New York, New York [bullet], or at such other paying
agency in the Borough of Manhattan, The City of New York, as the Company may
determine. Payment of interest due on any Interest Payment Date other than the
Maturity Date will be made by check mailed to the address of the person
entitled thereto as such address shall appear in the Security Register
maintained at the aforementioned office of the Trustee; PROVIDED, HOWEVER, that
a holder of U.S.$10,000,000 or more in aggregate principal amount of Notes
(whether having identical or different terms and provisions) will be entitled
to receive interest payments on such Interest Payment Date by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 calendar days prior to such
Interest Payment Date. Any such wire transfer instructions received by the
Trustee shall remain in effect until revoked by such holder.
If any Interest Payment Date or the Maturity Date falls on a day that is
not a Business Day, the required payment of principal, premium, if any, and/or
interest shall be made on the next succeeding Business Day with the same force
and effect as if made on the date such payment was due, and no interest shall
accrue with respect to such payment for the period from and after such Interest
Payment Date or the Maturity Date, as the case may be, to the date of such
payment on the next succeeding Business Day.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York.
The Company is obligated to make payment of principal, premium, if any, and
interest in respect of this Note in United States dollars.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof and, if so specified on the face hereof, in an Addendum
hereto, which further provisions shall have the same force and effect as if set
forth on the face hereof.
Notwithstanding the foregoing, if an Addendum is attached hereto or
"Other/Additional Provisions" apply to this Note as specified above, this Note
shall be subject to the terms set forth in such Addendum or such
"Other/Additional Provisions."
Unless the Certificate of Authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
3
<PAGE> 4
IN WITNESS WHEREOF, HOMESIDE LENDING, INC. has caused this Note to be duly
executed by one of its duly authorized officers.
HOMESIDE LENDING, INC.
By________________________________
Title:
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Debt Securities of
the series designated therein referred
to in the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
By____________________________
Authorized Signatory
4
<PAGE> 5
[REVERSE OF NOTE]
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTE
(Fixed Rate)
This Note is one of a duly authorized series of Debt Securities (the "Debt
Securities") of the Company issued and to be issued under an Indenture, dated
as of [bullet], as amended, modified or supplemented from time to time (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the holders of the
Debt Securities, and of the terms upon which the Debt Securities are, and are
to be, authenticated and delivered. This Note is one of the series of Debt
Securities designated as "Medium-Term Notes Due Nine Months or More From Date
of Issue" (the "Notes"). All terms used but not defined in this Note or in an
Addendum hereto shall have the meanings assigned to such terms in the Indenture
or on the face hereof, as the case may be.
This Note is issuable only in registered form without coupons in minimum
denominations of U.S.$1,000 and integral multiples thereof or the minimum
Authorized Denomination specified on the face hereof.
This Note will not be subject to any sinking fund and, unless otherwise
specified on the face hereof in accordance with the provisions of the following
two paragraphs, will not be redeemable or repayable prior to the Stated Maturity
Date.
This Note will be subject to redemption at the option of the Company on any
date on or after the Initial Redemption Date, if any, specified on the face
hereof, in whole or from time to time in part in increments of U.S.$1,000 or the
minimum Authorized Denomination (provided that any remaining principal amount
hereof shall be at least U.S.$1,000 or such minimum Authorized Denomination), at
the Redemption Price (as defined below), together with unpaid interest accrued
thereon to the date fixed for redemption (each, a "Redemption Date"), on notice
given no more than 60 nor less than 30 calendar days prior to the Redemption
Date and in accordance with the provisions of the Indenture. The "Redemption
Price" shall initially be the Initial Redemption Percentage specified on the
face hereof multiplied by the unpaid principal amount of this Note to be
redeemed. The Initial Redemption Percentage shall decline at each anniversary of
the Initial Redemption Date by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof until the Redemption Price is 100% of unpaid
principal amount to be redeemed. In the event of redemption of this Note in part
only, a new Note of like tenor for the unredeemed portion hereof and otherwise
having
5
<PAGE> 6
the same terms as this Note shall be issued in the name of the holder hereof
upon the presentation and surrender hereof.
This Note will be subject to repayment by the Company at the option of the
holder hereof on the Optional Repayment Date(s), if any, specified on the face
hereof, in whole or in part in increments of U.S.$1,000 or the minimum
Authorized Denomination (provided that any remaining principal amount hereof
shall be at least U.S.$1,000 or such minimum Authorized Denomination), at a
repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued thereon to the date fixed for repayment
(each, a "Repayment Date"). For this Note to be repaid, this Note must be
received, together with the form hereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its corporate trust office not more than 60
nor less than 30 calendar days prior to the Repayment Date. Exercise of such
repayment option by the holder hereof will be irrevocable. In the event of
repayment of this Note in part only, a new Note of like tenor for the unrepaid
portion hereof and otherwise having the same terms as this Note shall be issued
in the name of the holder hereof upon the presentation and surrender hereof.
If this Note is an Original Issue Discount Note as specified on the face
hereof, the amount payable to the holder of this Note in the event of
redemption, repayment or acceleration of maturity will be equal to the sum of
(1) the Issue Price specified on the face hereof (increased by any accruals of
the Discount, as defined below) and, in the event of any redemption of this Note
(if applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) and (2) any unpaid
interest on this Note accrued from the Original Issue Date to the Redemption
Date, Repayment Date or date of acceleration of maturity, as the case may be.
The difference between the Issue Price and 100% of the principal amount of this
Note is referred to herein as the "Discount."
For purposes of determining the amount of Discount that has accrued as of
any Redemption Date, Repayment Date or date of acceleration of maturity of this
Note, such Discount will be accrued so as to cause the yield on the Note to be
constant. The constant yield will be calculated using a 30-day month, 360-day
year convention, a compounding period that, except for the Initial Period (as
defined below), corresponds to the shortest period between Interest Payment
Dates (with ratable accruals within a compounding period) and an assumption that
the maturity of this Note will not be accelerated. If the period from the
Original Issue Date to the initial Interest Payment Date (the "Initial Period")
is shorter than the compounding period for this Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial
Period is longer than the compounding period, then such period will be divided
into a regular compounding period and a short period, with the short period
being treated as provided in the preceding sentence.
6
<PAGE> 7
If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of the Notes may be accelerated in the manner and with
the effect provided in the Indenture.
The Indenture contains provisions for defeasance of (i) the entire
indebtedness of the Notes or (ii) certain covenants and Events of Default with
respect to the Notes, in each case upon compliance with certain conditions set
forth therein, which provisions apply to the Notes.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Debt Securities at any time by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of all Debt Securities at the time
outstanding and affected thereby. The Indenture also contains provisions
permitting the holders of not less than a majority of the aggregate principal
amount of the outstanding Debt Securities of any series, on behalf of the
holders of all such Debt Securities, to waive compliance by the Company with
certain provisions of the Indenture. Furthermore, provisions in the Indenture
permit the holders of not less than a majority of the aggregate principal amount
of the outstanding Debt Securities of any series, in certain instances, to
waive, on behalf of all of the holders of Debt Securities of such series,
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the holder of this Note shall be conclusive and binding
upon such holder and upon all future holders of this Note and other Notes issued
upon the registration of transfer hereof or in exchange heretofore or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay principal, premium, if any, and interest in
respect of this Note at the times, places and rate or formula, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein and
herein set forth, the transfer of this Note is registrable in the Security
Register of the Company upon surrender of this Note for registration of transfer
at the office or agency of the Company in any place where the principal hereof
and any premium or interest hereon are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the holder hereof or by his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
7
<PAGE> 8
As provided in the Indenture and subject to certain limitations therein and
herein set forth, this Note is exchangeable for a like aggregate principal
amount of Notes of different authorized denominations but otherwise having the
same terms and conditions, as requested by the holder hereof surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
holder in whose name this Note is registered as the owner thereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in such State.
8
<PAGE> 9
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian ______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
----------------------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- ------------------------------------------------------------------------------
this Note and all rights thereunder hereby irrevocably constituting and
appointing
- --------------------------------------------------------------------- Attorney
to transfer this Note on the books of the Trustee, with full power of
substitution in the premises.
Dated:
------------------------- ---------------------------------------
---------------------------------------
Notice: The signature(s) on this
Assignment must correspond with the
name(s) as written upon the face of
this Note in every particular, with-
out alteration or enlargement or any
change whatsoever.
9
<PAGE> 10
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Company
to repay this Note (or portion hereof specified below) pursuant to its terms at
a price equal to 100% of the principal amount to be repaid, together with unpaid
interest accrued hereon to the Repayment Date, to the undersigned, at __________
________________________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at its corporate trust
office in the Borough of Manhattan, The City of New York, currently located at
______________________________________, not more than 60 nor less than 30
calendar days prior to the Repayment Date, this Note with this "Option to Elect
Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be increments of U.S.$1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be an Authorized Denomination) of the Notes to be issued to the
holder for the portion of this Note not being repaid (in the absence of any
such specification, one such Note will be issued for the portion not being
repaid).
Principal Amount
to be Repaid: $ _________ _________________________________
Notice: The signature(s) on this
Date: ____________________ Option to Elect Repayment must
correspond with the name(s) as
written upon the face of this
Note in every particular, without
alteration or enlargement or any
change whatsoever.
10
<PAGE> 1
EXHIBIT 4.3
[FACE OF NOTE]
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITARY") (55 WATER STREET, NEW YORK, NEW YORK) TO THE
ISSUER HEREOF OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.1
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.2
REGISTERED CUSIP No.: PRINCIPAL AMOUNT:
No. FLR- ___ __________ _________________
<TABLE>
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTE
(Floating Rate)
<S> <C> <C>
INTEREST RATE BASIS ORIGINAL ISSUE DATE: STATED MATURITY DATE:
OR BASES:
IF LIBOR: IF CMT RATE:
[ ] LIBOR Reuters Designated CMT Telerate
Page: Page:
[ ] LIBOR Telerate IF Telerate Page 7052:
Page: [ ] Weekly Average
INDEX CURRENCY: [ ] Monthly Average
Designated CMT Maturity
Index:
INDEX MATURITY: INITIAL INTEREST RATE: % INTEREST PAYMENT DATE(S):
SPREAD (PLUS OR SPREAD MULTIPLIER: INITIAL INTEREST RESET
MINUS): DATE:
- --------------
<FN>
1 This paragraph applies to global Notes only.
2 This paragraph applies to global Notes only.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
MINIMUM INTEREST RATE: % MAXIMUM INTEREST RATE: % INTEREST RESET DATE(S):
INITIAL REDEMPTION INITIAL REDEMPTION ANNUAL REDEMPTION
DATE: PERCENTAGE: % PERCENTAGE REDUCTION: %
OPTIONAL REPAYMENT CALCULATION AGENT:
DATE(S):
INTEREST CATEGORY: DAY COUNT CONVENTION:
[ ] Regular Floating Rate Note [ ] 30/360 for the period
[ ] Floating Rate/Fixed Rate Note from to .
Fixed Rate Commencement Date: [ ] Actual/360 for the period
Fixed Interest Rate: % from to .
[ ] Inverse Floating Rate Note [ ] Actual/Actual for the period
Fixed Interest Rate: % from to .
[ ] Original Issue Discount Note Applicable Interest Rate Basis:
Issue Price: %
AUTHORIZED DENOMINATION:
[ ] $1,000 and integral multiples
thereof
[ ] Other:
DEFAULT RATE: %
ADDENDUM ATTACHED
[ ] Yes
[ ] No
OTHER/ADDITIONAL PROVISIONS:
</TABLE>
2
<PAGE> 3
HOMESIDE LENDING, INC., a Florida corporation (the "Company," which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to [bullet], or registered
assigns, the principal sum of [bullet], on the Stated Maturity Date specified
above (or any Redemption Date or Repayment Date, each as defined on the reverse
hereof) (each such Stated Maturity Date, Redemption Date or Repayment Date
being hereinafter referred to as the "Maturity Date" with respect to the
principal repayable on such date) and to pay interest thereon, at a rate per
annum equal to the Initial Interest Rate specified above until the Initial
Interest Reset Date specified above and thereafter at a rate determined in
accordance with the provisions specified above and on the reverse hereof or in
an Addendum hereto with respect to one or more Interest Rate Bases specified
above until the principal hereof is paid or duly made available for payment,
and (to the extent that the payment of such interest shall be legally
enforceable) at the Default Rate per annum specified above on any overdue
principal, premium and/or interest. The Company will pay interest in arrears on
each Interest Payment Date, if any, specified above (each, an "Interest Payment
Date"), commencing with the first Interest Payment Date next succeeding the
Original Issue Date specified above, and on the Maturity Date; PROVIDED,
HOWEVER, that if the Original Issue Date occurs between a Record Date (as
defined below) and the next succeeding Interest Payment Date, interest payments
will commence on the second Interest Payment Date next succeeding the Original
Issue Date to the holder of this Note on the Record Date with respect to such
second Interest Payment Date.
Interest on this Note will accrue from, and including, the immediately
preceding Interest Payment Date to which interest has been paid or duly provided
for (or from, and including, the Original Issue Date if no interest has been
paid or duly provided for) to, but excluding, the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period"). The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, subject to certain exceptions described herein, be paid to
the person in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the fifteenth calendar day (whether or
not a Business Day, as defined on the reverse hereof) immediately preceding such
Interest Payment Date (the "Record Date"); PROVIDED, HOWEVER, that interest
payable on the Maturity Date will be payable to the person to whom the principal
hereof and premium, if any, hereon shall be payable. Any such interest not so
punctually paid or duly provided for ("Defaulted Interest") will forthwith cease
to be payable to the holder on any Record Date, and shall be paid to the person
in whose name this Note is registered at the close of business on a special
record date (the "Special Record Date") for the payment of such Defaulted
Interest to be fixed by the Trustee hereinafter referred to, notice whereof
shall be given to the holder of this Note by the Trustee not less than 10
calendar days prior to such Special Record Date or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which this Note may be listed, and upon such notice as may be
required by such exchange, all as more fully provided for in the Indenture.
3
<PAGE> 4
Payment of principal, premium, if any, and interest in respect of this
Note due on the Maturity Date will be made in immediately available funds upon
presentation and surrender of this Note (and, with respect to any applicable
repayment of this Note, a duly completed election form as contemplated on the
reverse hereof) at the corporate trust office of the Trustee maintained for
that purpose in the Borough of Manhattan, The City of New York, currently
located at 101 Barclay Street, Floor 21 West, New York, New York 10286 or at
such other paying agency in the Borough of Manhattan, The City of New York, as
the Company may determine. Payment of interest due on any Interest Payment Date
other than the Maturity Date will be made by check mailed to the address of the
person entitled thereto as such address shall appear in the Security Register
maintained at the aforementioned office of the Trustee; PROVIDED, HOWEVER, that
a holder of U.S.$10,000,000 or more in aggregate principal amount of Notes
(whether having identical or different terms and provisions) will be entitled
to receive interest payments on such Interest Payment Date by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 calendar days prior to such
Interest Payment Date. Any such wire transfer instructions received by the
Trustee shall remain in effect until revoked by such holder.
If any Interest Payment Date other than the Maturity Date would otherwise
be a day that is not a Business Day, such Interest Payment Date shall be
postponed to the next succeeding Business Day, except that if LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date shall be the immediately
preceding Business Day. If the Maturity Date falls on a day that is not a
Business Day, the required payment of principal, premium, if any, and interest
shall be made on the next succeeding Business Day with the same force and effect
as if made on the date such payment was due, and no interest shall accrue with
respect to such payment for the period from and after the Maturity Date to the
date of such payment on the next succeeding Business Day.
The Company is obligated to make payment of principal, premium, if any, and
interest in respect of this Note in United States Dollars.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof and, if so specified on the face hereof, in an Addendum
hereto, which further provisions shall have the same force and effect as if set
forth on the face hereof.
Notwithstanding any provisions to the contrary contained herein, if the
face of this Note specifies that an Addendum is attached hereto or that
"Other/Additional Provisions" apply, this Note shall be subject to the terms set
forth in such Addendum or such "Other/Additional Provisions."
Unless the Certificate of Authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
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<PAGE> 5
IN WITNESS WHEREOF, HOMESIDE LENDING, INC. has caused this Note to be duly
executed by one of its duly authorized officers.
HOMESIDE LENDING, INC.
By________________________________
Title:
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Debt Securities of
the series designated therein referred
to in the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
By____________________________
Authorized Signatory
5
<PAGE> 6
[REVERSE OF NOTE]
HOMESIDE LENDING, INC.
MEDIUM-TERM NOTE
(Floating Rate)
This Note is one of a duly authorized series of Debt Securities (the "Debt
Securities") of the Company issued and to be issued under an Indenture, dated
as of [bullet], as amended, modified or supplemented from time to time (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee and the holders of the Debt
Securities, and of the terms upon which the Debt Securities are, and are to be,
authenticated and delivered. This Note is one of the series of Debt Securities
designated as "Medium-Term Notes Due Nine Months or More From Date of Issue"
(the "Notes"). All terms used but not defined in this Note or in an Addendum
hereto shall have the meanings assigned to such terms in the Indenture or on
the face hereof, as the case may be.
This Note is issuable only in registered form without coupons in minimum
denominations of U.S.$1,000 and integral multiples thereof or the minimum
Authorized Denomination specified on the face hereof.
This Note will not be subject to any sinking fund and, unless otherwise
specified on the face hereof in accordance with the provisions of the following
two paragraphs, will not be redeemable or repayable prior to the Stated Maturity
Date.
This Note will be subject to redemption at the option of the Company on any
date on or after the Initial Redemption Date, if any, specified on the face
hereof, in whole or from time to time in part in increments of U.S.$1,000 or the
minimum Authorized Denomination (provided that any remaining principal amount
hereof shall be at least U.S.$1,000 or such minimum Authorized Denomination), at
the Redemption Price (as defined below), together with unpaid interest accrued
thereon to the date fixed for redemption (each, a "Redemption Date"), on notice
given no more than 60 nor less than 30 calendar days prior to the Redemption
Date and in accordance with the provisions of the Indenture. The "Redemption
Price" shall initially be the Initial Redemption Percentage specified on the
face hereof multiplied by the unpaid principal amount of this Note to be
redeemed. The Initial Redemption Percentage shall decline at each anniversary of
the Initial Redemption Date by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof until the Redemption Price is 100% of unpaid
principal amount to be redeemed. In the event of redemption of this Note in part
only, a new Note of like tenor for the unredeemed portion hereof and otherwise
having the same terms as this Note shall be issued in the name of the holder
hereof upon the presentation and surrender hereof.
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<PAGE> 7
This Note will be subject to repayment by the Company at the option of the
holder hereof on the Optional Repayment Date(s), if any, specified on the face
hereof, in whole or in part in increments of U.S.$1,000 or the minimum
Authorized Denomination (provided that any remaining principal amount hereof
shall be at least U.S.$1,000 or such minimum Authorized Denomination), at a
repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued thereon to the date fixed for repayment
(each, a "Repayment Date"). For this Note to be repaid, this Note must be
received, together with the form hereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its corporate trust office not more than 60
nor less than 30 calendar days prior to the Repayment Date. Exercise of such
repayment option by the holder hereof will be irrevocable. In the event of
repayment of this Note in part only, a new Note of like tenor for the unrepaid
portion hereof and otherwise having the same terms as this Note shall be issued
in the name of the holder hereof upon the presentation and surrender hereof.
If the Interest Category of this Note is specified on the face hereof as an
Original Issue Discount Note, the amount payable to the holder of this Note in
the event of redemption, repayment or acceleration of maturity of this Note will
be equal to the sum of (1) the Issue Price specified on the face hereof
(increased by any accruals of the Discount, as defined below) and, in the event
of any redemption of this Note (if applicable), multiplied by the Initial
Redemption Percentage (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) and (2) any unpaid interest on this Note accrued from
the Original Issue Date to the Redemption Date, Repayment Date or date of
acceleration of maturity, as the case may be. The difference between the Issue
Price and 100% of the principal amount of this Note is referred to herein as the
"Discount."
For purposes of determining the amount of Discount that has accrued as of
any Redemption Date, Repayment Date or date of acceleration of maturity of this
Note, such Discount will be accrued so as to cause an assumed yield on the Note
to be constant. The assumed constant yield will be calculated using a 30-day
month, 360-day year convention, a compounding period that, except for the
Initial Period (as defined below), corresponds to the shortest period between
Interest Payment Dates (with ratable accruals within a compounding period), a
constant coupon rate equal to the initial interest rate applicable to this Note
and an assumption that the maturity of this Note will not be accelerated. If the
period from the Original Issue Date to the initial Interest Payment Date (the
"Initial Period") is shorter than the compounding period for this Note, a
proportionate amount of the yield for an entire compounding period will be
accrued. If the Initial Period is longer than the compounding period, then such
period will be divided into a regular compounding period and a short period,
with the short period being treated as provided in the preceding sentence.
The interest rate borne by this Note will be determined as follows:
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<PAGE> 8
(i) Unless the Interest Category of this Note is specified on the face
hereof as a "Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate
Note" or as otherwise specified as Other/Additional Provisions on the face
hereof or in an Addendum hereto, this Note shall be designated as a
"Regular Floating Rate Note" and, except as set forth below or specified on
the face hereof or in an Addendum hereto, shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the Spread, if any, and/or (b) multiplied by the Spread
Multiplier, if any, in each case as specified on the face hereof.
Commencing on the Initial Interest Reset Date, the rate at which interest
on this Note shall be payable shall be reset as of each Interest Reset Date
specified on the face hereof; PROVIDED, HOWEVER, that the interest rate in
effect for the period, if any, from the Original Issue Date to the Initial
Interest Reset Date shall be the Initial Interest Rate.
(ii) If the Interest Category of this Note is specified on the face
hereof as a "Floating Rate/Fixed Rate Note," then, except as set forth
below or specified on the face hereof or in an Addendum hereto, this Note
shall bear interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the Spread, if any, and/or
(b) multiplied by the Spread Multiplier, if any. Commencing on the Initial
Interest Reset Date, the rate at which interest on this Note shall be
payable shall be reset as of each Interest Reset Date; PROVIDED, HOWEVER,
that (y) the interest rate in effect for the period, if any, from the
Original Issue Date to the Initial Interest Reset Date shall be the Initial
Interest Rate and (z) the interest rate in effect for the period commencing
on the Fixed Rate Commencement Date specified on the face hereof to the
Maturity Date shall be the Fixed Interest Rate specified on the face hereof
or, if no such Fixed Interest Rate is specified, the interest rate in
effect hereon on the day immediately preceding the Fixed Rate Commencement
Date.
(iii) If the Interest Category of this Note is specified on the face
hereof as an "Inverse Floating Rate Note," then, except as set forth below
or specified on the face hereof or in an Addendum hereto, this Note shall
bear interest at the Fixed Interest Rate minus the rate determined by
reference to the applicable Interest Rate Basis or Bases (a) plus or minus
the Spread, if any, and/or (b) multiplied by the Spread Multiplier, if any;
PROVIDED, HOWEVER, that, unless otherwise specified on the face hereof or
in an Addendum hereto, the interest rate hereon shall not be less than
zero. Commencing on the Initial Interest Reset Date, the rate at which
interest on this Note shall be payable shall be reset as of each Interest
Reset Date; PROVIDED, HOWEVER, that the interest rate in effect for the
period, if any, from the Original Issue Date to the Initial Interest Reset
Date shall be the Initial Interest Rate.
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<PAGE> 9
Except as set forth above or specified on the face hereof or in an Addendum
hereto, the interest rate in effect on each day shall be (i) if such day is an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date (as defined below) immediately preceding such Interest Reset
Date or (ii) if such day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately preceding the most
recent Interest Reset Date. If any Interest Reset Date would otherwise be a day
that is not a Business Day, such Interest Reset Date shall be postponed to the
next succeeding Business Day, except that if LIBOR is an applicable Interest
Rate Basis and such Business Day falls in the next succeeding calendar month,
such Interest Reset Date shall be the immediately preceding Business Day. In
addition, if the Treasury Rate is an applicable Interest Rate Basis and the
Interest Determination Date would otherwise fall on an Interest Reset Date, then
such Interest Reset Date will be postponed to the next succeeding Business Day.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in
The City of New York; PROVIDED, HOWEVER, that if LIBOR is an applicable
Interest Rate Basis, such day is also a London Business Day (as defined below).
"London Business Day" means a day on which dealings in the Designated LIBOR
Currency (as hereinafter defined) are transacted in the London interbank
market. "Principal Financial Center" means the capital city of the country
issuing the Specified Currency, or solely with respect to the calculation of
LIBOR, the Index Currency, except that with respect to United States dollars,
Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs
and ECU, the "Principal Financial Center" shall be The City of New York,
Sydney, Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be determined by the Calculation Agent as
of the applicable Interest Determination Date and will be calculated by the
Calculation Agent on or prior to
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<PAGE> 10
the Calculation Date (as defined below), except with respect to the LIBOR and
the Eleventh District Cost of Funds Rate, which will be calculated as of such
Interest Determination Date. The "Interest Determination Date" with respect to
the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate and
the Prime Rate will be the second Business Day immediately preceding the
applicable Interest Reset Date; the "Interest Determination Date" with respect
to the Eleventh District Cost of Funds Rate shall be the last working day of the
month immediately preceding the applicable Interest Reset Date on which the
Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco") publishes
the Index (as defined below); and the "Interest Determination Date" with respect
to LIBOR shall be the second London Business Day immediately preceding the
applicable Interest Reset Date, unless the Index Currency is British pounds
sterling, in which case the "Interest Determination Date" will be the applicable
Interest Reset Date. The "Interest Determination Date" with respect to the
Treasury Rate shall be the day in the week in which the applicable Interest
Reset Date falls on which day Treasury Bills (as defined below) are normally
auctioned (Treasury Bills are normally sold at an auction held on Monday of each
week, unless that day is a legal holiday, in which case the auction is normally
held on the following Tuesday, except that such auction may be held on the
preceding Friday); PROVIDED, HOWEVER, that if an auction is held on the Friday
of the week preceding the applicable Interest Reset Date, the "Interest
Determination Date" shall be such preceding Friday. If the interest rate of this
Note is determined with reference to two or more Interest Rate Bases specified
on the face hereof, the "Interest Determination Date" pertaining to this Note
shall be the most recent Business Day which is at least two Business Days prior
to the applicable Interest Reset Date on which each Interest Rate Basis is
determinable. Each Interest Rate Basis shall be determined as of such date, and
the applicable interest rate shall take effect on the related Interest Reset
Date.
Unless otherwise specified on the face hereof or in an Addendum hereto, the
rate with respect to each Interest Rate Basis will be determined in accordance
with the applicable provisions below.
CD RATE. If an Interest Rate Basis for this Note is specified on the face
hereof as the CD Rate, the CD Rate shall be determined as of the applicable
Interest Determination Date (a "CD Rate Interest Determination Date") as the
rate on such date for negotiable United States dollar certificates of deposit
having the Index Maturity specified on the face hereof as published by the Board
of Governors of the Federal Reserve System in "Statistical Release H.15(519),
Selected Interest Rates" or any successor publication ("H.15(519)") under the
heading "CDs (Secondary Market)," or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the rate on such CD Rate Interest
Determination Date for negotiable United States dollar certificates of deposit
of the Index Maturity as published by the Federal Reserve Bank of New York in
its daily statistical release "Composite 3:30 P.M. Quotations for United States
Government Securities" or any successor publication ("Composite Quotations")
under the heading "Certificates of Deposit." If such rate is not
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<PAGE> 11
yet published in either H.15(519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the CD Rate on such CD Rate
Interest Determination Date will be calculated by the Calculation Agent
specified on the face hereof and will be the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on such CD Rate
Interest Determination Date, of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York selected by
the Calculation Agent for negotiable certificates of deposit of major United
States money market banks for negotiable United States dollar certificates of
deposit with a remaining maturity closest to the Index Maturity in an amount
that is representative for a single transaction in that market at that time;
PROVIDED, HOWEVER, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the CD Rate determined as of such CD
Rate Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
CMT RATE. If an Interest Rate Basis for this Note is specified on the face
hereof as the CMT rate, the CMT Rate shall be determined as of the applicable
Interest Determination Date (a "CMT Rate Interest Determination Date") as the
rate displayed on the Designated CMT Telerate Page (as defined below) under the
caption "...Treasury Constant Maturities...Federal Reserve Board Release
H.15...Mondays Approximately 3:45 P.M.," under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is
7055, the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the weekly or monthly average, as
specified on the face hereof, for the week or month, as applicable, ended
immediately preceding the week or month, as applicable, in which the related CMT
Rate Interest Determination Date occurs. If such rate is no longer displayed on
the relevant page or is not displayed by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such CMT Rate Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in H.15(519). If such rate is no
longer published or is not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate on such CMT Rate Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in
H.15(519). If such information is not provided by 3:00 P.M., New York City time,
on the related Calculation Date, then the CMT Rate on the CMT Rate Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
offer side prices as of approximately 3:30 P.M., New York City time, on such CMT
Rate Interest Determination Date reported, according to their written records,
by three leading primary United States government
11
<PAGE> 12
securities dealers (each, a "Reference Dealer") in The City of New York selected
by the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus one year.
If the Calculation Agent is unable to obtain three such Treasury Note
quotations, the CMT Rate on such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on the
arithmetic mean of the secondary market offer side prices as of approximately
3:30 P.M., New York City time, on such CMT Rate Interest Determination Date of
three Reference Dealers in The City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least U.S.$100 million. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers
selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate
determined as of such CMT Rate Interest Determination Date will be the CMT Rate
in effect on such CMT Rate Interest Determination Date. If two Treasury Notes
with an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the Calculation Agent will obtain quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified on the face hereof (or
any other page as may replace such page on such service (or any successor
service) for the purpose of displaying Treasury Constant Maturities as reported
in H.15(519). If no such page is specified on the face hereof, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the United States Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified on the face hereof with respect to which the CMT Rate will be
calculated. If no such maturity is specified on the face hereof, the Designated
CMT Maturity Index shall be 2 years.
COMMERCIAL PAPER RATE. If an Interest Rate Basis for this Note is specified
on the face hereof as the Commercial Paper Rate, the Commercial Paper Rate shall
be determined as of the applicable Interest Determination Date (a "Commercial
Paper Rate Interest
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<PAGE> 13
Determination Date") as the Money Market Yield (as defined below) on such date
of the rate for commercial paper having the Index Maturity as published in
H.15(519) under the heading "Commercial Paper." In the event that such rate is
not published by 3:00 P.M., New York City time, on such Calculation Date, then
the Commercial Paper Rate on such Commercial Paper Rate Interest Determination
Date will be the Money Market Yield of the rate for commercial paper having the
Index Maturity as published in Composite Quotations under the heading
"Commercial Paper" (with an Index Maturity of one month or three months being
deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on such Calculation Date,
then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date will be calculated by the Calculation Agent and shall be the
Money Market Yield of the arithmetic mean of the offered rates at approximately
11:00 A.M., New York City time, on such Commercial Paper Rate Interest
Determination Date of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent for commercial paper having the Index
Maturity placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized statistical rating organization;
PROVIDED, HOWEVER, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Commercial Paper Rate determined
as of such Commercial Paper Rate Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
D x 360
Money Market Yield = ---------------- x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
ELEVENTH DISTRICT COST OF FUNDS RATE. If an Interest Rate Basis for this
Note is specified on the face hereof as the Eleventh District Cost of Funds
Rate, the Eleventh District Cost of Funds Rate shall be determined as of the
applicable Interest Determination Date (an "Eleventh District Cost of Funds Rate
Interest Determination Date") as the rate equal to the monthly weighted average
cost of funds for the calendar month immediately preceding the month in which
such Eleventh District Cost of Funds Rate Interest Determination Date falls, as
set forth under the caption "11th District" on Telerate Page 7058 as of 11:00
A.M., San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan
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<PAGE> 14
Bank District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
FEDERAL FUNDS RATE. If an Interest Rate Basis for this Note is specified on
the face hereof as the Federal Funds Rate, the Federal Funds Rate shall be
determined as of the applicable Interest Determination Date (a "Federal Funds
Rate Interest Determination Date") as the rate on such date for United States
dollar federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
Calculation Date, the rate on such Federal Funds Rate Interest Determination
Date as published in Composite Quotations under the heading "Federal
Funds/Effective Rate." If such rate is not published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Federal Funds Rate on such Federal Funds Interest
Determination Date shall be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight United States
dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York selected by the Calculation Agent, prior to
9:00 A.M., New York City time, on such Federal Funds Rate Interest Determination
Date; PROVIDED, HOWEVER, that if the brokers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined as of such Federal Funds Rate Interest Determination Date will be the
Federal Funds Rate in effect on such Federal Funds Rate Interest Determination
Date.
LIBOR. If an Interest Rate Basis for this Note is specified on the face
hereof as LIBOR, LIBOR shall be determined by the Calculation Agent as of the
applicable Interest Determination Date (a "LIBOR Interest Determination Date")
in accordance with the following provisions:
(i) if (a) "LIBOR Reuters" is specified on the face hereof, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page (as
defined below) by its terms provides only for a single rate, in which case such
single rate will be used) for deposits in the Index Currency having the Index
Maturity, commencing on the applicable Interest Reset Date, that appear (or, if
only a single rate is required as aforesaid, appears) on the Designated LIBOR
Page (as defined below) as of 11:00 A.M., London time, on such LIBOR Interest
Determination Date, or (b) "LIBOR Telerate" is specified on the face hereof, or
if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified on the face hereof
as the method for calculating LIBOR, the rate for deposits in the
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<PAGE> 15
Index Currency having the Index Maturity, commencing on such Interest Reset
Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London time,
on such LIBOR Interest Determination Date. If fewer than two such offered rates
appear, or if no such rate appears, as applicable, LIBOR on such LIBOR Interest
Determination Date shall be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent shall request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in the
Index Currency for the period of the Index Maturity, commencing on the
applicable Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date
and in a principal amount that is representative for a single transaction in
such Index Currency in such market at such time. If at least two such quotations
are so provided, then LIBOR on such LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two such quotations are so
provided, then LIBOR on such LIBOR Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M., in the
applicable Principal Financial Center, on such LIBOR Interest Determination Date
by three major banks in such Principal Financial Center selected by the
Calculation Agent for loans in the Index Currency to leading European banks,
having the Index Maturity and in a principal amount that is representative for a
single transaction in such Index Currency in such market at such time; PROVIDED,
HOWEVER, that if the banks so selected by the Calculation Agent are not quoting
as mentioned in this sentence, LIBOR determined as of such LIBOR Interest
Determination Date shall be LIBOR in effect on such LIBOR Interest Determination
Date.
"Index Currency" means the currency or composite currency specified on the
face hereof as to which LIBOR shall be calculated. If no such currency or
composite currency is specified on the face hereof, the Index Currency shall be
United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified on the
face hereof, the display on the Reuter Monitor Money Rates Service (or any
successor service) on the page specified on the face hereof (or any other page
as may replace such page on such service (or any successor service)), for the
purpose of displaying the London interbank rates of major banks for the Index
Currency, or (b) if "LIBOR Telerate" is specified on the face hereof or neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified on the face hereof as the
method for calculating LIBOR, the display on the Dow Jones Telerate Service (or
any successor service) on the page specified on the face hereof (or any other
page as may replace such page on such service (or any successor service)) for
the purpose of displaying the London interbank rates of major banks for the
Index Currency.
15
<PAGE> 16
PRIME RATE. If an Interest Rate Basis for this Note is specified on the
face hereto as the Prime Rate, the Prime Rate shall be determined as of the
applicable Interest Determination Date (a "Prime Rate Interest Determination
Date") as the rate on such date as such rate is published in H.15(519) under the
heading "Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New
York City time, on the related Calculation Date, then the Prime Rate shall be
the arithmetic mean of the rates of interest publicly announced by each bank
that appears on the Reuters Screen USPRIME1 Page (as defined below) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, the Prime Rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date by four major money
center banks in The City of New York selected by the Calculation Agent. If fewer
than four such quotations are so provided, the Prime Rate shall be the
arithmetic mean of four prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Rate Interest Determination Date as furnished in The City of New York by
the major money center banks, if any, that have provided such quotations and by
a reasonable number of substitute banks or trust companies to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any State
thereof, each having total equity capital of at least U.S.$500 million and being
subject to supervision or examination by Federal or State authority, selected by
the Calculation Agent to provide such rate or rates; PROVIDED, HOWEVER, that if
the banks or trust companies so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Prime Rate determined as of such
Prime Rate Interest Determination Date will be the Prime Rate in effect on such
Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuter Monitor Money Rates Service (or any successor service)
(or such other page as may replace the USPRIME1 page on such service (or any
successor service) for the purpose of displaying prime rates or base lending
rates of major United States banks).
TREASURY RATE. If an Interest Rate Basis for this Note is specified on the
face hereof as the Treasury Rate, the Treasury Rate shall be determined as of
the applicable Interest Determination Date (a "Treasury Rate Interest
Determination Date") as the rate from the auction held on such Treasury Rate
Interest Determination Date (the "Auction") of direct obligations of the United
States ("Treasury Bills") having the Index Maturity, as such rate is published
in H.15(519) under the heading "Treasury bills-auction average (investment)" or,
if not published by 3:00 P.M., New York City time, on the related Calculation
Date, the auction average rate of such Treasury Bills (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as otherwise announced by the
16
<PAGE> 17
United States Department of the Treasury. In the event that the results of the
Auction of Treasury Bills having the Index Maturity are not reported as provided
above by 3:00 P.M., New York City time, on such Calculation Date, or if no such
Auction is held, then the Treasury Rate shall be calculated by the Calculation
Agent and shall be a yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the arithmetic mean of the secondary market bid rates, as of approximately
3:30 P.M., New York City time, on such Treasury Rate Interest Determination
Date, of three leading primary United States government securities dealers
selected by the Calculation Agent, for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity; PROVIDED, HOWEVER, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less than the Minimum
Interest Rate, if any, in each case as specified on the face hereof. The
interest rate on this Note will in no event be higher than the maximum rate
permitted by New York law, as the same may be modified by United States law of
general application.
The "Calculation Date," if applicable, pertaining to any Interest
Determination Date shall be the earlier of (i) the tenth calendar day after such
Interest Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Maturity Date, as the case may be. At
the request of the Holder hereof, the Calculation Agent will provide to the
Holder hereof the interest rate hereon then in effect and, if determined, the
interest rate that will become effective as a result of a determination made for
the next succeeding Interest Reset Date.
Accrued interest hereon shall be an amount calculated by multiplying the
principal amount hereof by an accrued interest factor. Such accrued interest
factor shall be computed by adding the interest factor calculated for each day
in the applicable Interest Period. Unless otherwise specified as the Day Count
Convention on the face hereof, the interest factor for each such date shall be
computed by dividing the interest rate applicable to such day by 360 if the CD
Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the
Federal Funds Rate, LIBOR or the Prime Rate is an applicable Interest Rate Basis
or by the actual number of days in the year if the CMT Rate or the Treasury Rate
is an applicable Interest Rate Basis. Unless otherwise specified as the Day
Count Convention on the face hereof, the interest factor for this Note, if the
interest rate is calculated with reference to two or more Interest Rate Bases,
shall be calculated in each period in the same manner as if only the Applicable
Interest Rate Basis specified on the face hereof applied.
All percentages resulting from any calculation on this Note shall be
rounded to the nearest one hundred-thousandth of a
17
<PAGE> 18
percentage point, with five one-millionths of a percentage point rounded
upwards, and all amounts used in or resulting from such calculation on this Note
shall be rounded to the nearest cent (with one-half cent being rounded
upwards).
If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of the Notes may be accelerated in the manner and with
the effect provided in the Indenture.
The Indenture contains provisions for defeasance of (i) the entire
indebtedness of the Notes or (ii) certain covenants and Events of Default with
respect to the Notes, in each case upon compliance with certain conditions set
forth therein, which provisions apply to the Notes.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Debt Securities at any time by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of all Debt Securities at the time
outstanding and affected thereby. The Indenture also contains provisions
permitting the holders of not less than a majority of the aggregate principal
amount of the outstanding Debt Securities of any series, on behalf of the
holders of all such Debt Securities, to waive compliance by the Company with
certain provisions of the Indenture. Furthermore, provisions in the Indenture
permit the holders of not less than a majority of the aggregate principal amount
of the outstanding Debt Securities of any series, in certain instances, to
waive, on behalf of all of the holders of Debt Securities of such series,
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the holder of this Note shall be conclusive and binding
upon such holder and upon all future holders of this Note and other Notes issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay principal, premium, if any, and interest in
respect of this Note at the times, places and rate or formula, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein and
herein set forth, the transfer of this Note is registrable in the Security
Register of the Company upon surrender of this Note for registration of transfer
at the office or agency of the Company in any place where the principal hereof
and any premium or interest hereon are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the holder hereof or by his attorney duly
authorized
18
<PAGE> 19
in writing, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
As provided in the Indenture and subject to certain limitations therein and
herein set forth, this Note is exchangeable for a like aggregate principal
amount of Notes of different authorized denominations but otherwise having the
same terms and conditions, as requested by the holder hereof surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
holder in whose name this Note is registered as the owner thereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in such State.
19
<PAGE> 20
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian ______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
----------------------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- ------------------------------------------------------------------------------
this Note and all rights thereunder hereby irrevocably constituting and
appointing
____________________________________________________________________ Attorney
to transfer this Note on the books of the Trustee, with full power of
substitution in the premises.
Dated:_____________________ _______________________________________
_______________________________________
Notice: The signature(s) on this
Assignment must correspond with the
name(s) as written upon the face of
this Note in every particular, with-
out alteration or enlargement or any
change whatsoever.
20
<PAGE> 21
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Company
to repay this Note (or portion hereof specified below) pursuant to its terms at
a price equal to 100% of the principal amount to be repaid, together with unpaid
interest accrued hereon to the Repayment Date, to the undersigned, at _________
_______________________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at its corporate trust
office in the Borough of Manhattan, The City of New York, currently located at
__________________________________________, not more than 60 nor less than 30
calendar days prior to the Repayment Date, this Note with this "Option to Elect
Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be increments of U.S.$1,000) which the
holder elects to have repaid and specify the denomination or denominations
(which shall be an Authorized Denomination) of the Notes to be issued to the
holder for the portion of this Note not being repaid (in the absence of any
such specification, one such Note will be issued for the portion not being
repaid).
Principal Amount
to be Repaid: $ _____________ _________________________________
Notice: The signature(s) on
Date: ________________________ this Option to Elect Repayment
must correspond with the
name(s) as written upon the
face of this Note in every
particular, without alteration
or enlargement or any change
whatsoever.
21
<PAGE> 1
EXHIBIT 5.1
March __, 1997
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as counsel to HomeSide Lending, Inc., a Florida
corporation (the "Company") in connection with the proceedings being taken to
register under the Securities Act of 1933, as amended, $1,000,000,000 aggregate
initial public offering price of debt securities pursuant to a Registration
Statement on Form S-1 (File No. 333-21193) filed with the Securities and
Exchange Commission (the "Registration Statement"). The debt securities are
being issued pursuant to an indenture in the form filed as an exhibit to the
Registration Statement (the "Indenture").
As such counsel, we have examined such corporate records, certificates
and other documents of or relating to the Company, and opinions of counsel in
jurisdictions other than Massachusetts, as we have deemed necessary as a basis
for the opinions hereinafter expressed. We have assumed the genuineness of all
signatures, the authenticity of all original or certified copies and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduction copies. We have also assumed, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or otherwise)
to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are valid, binding and enforceable obligations of such
parties.
Based upon the foregoing, subject to the limitations set forth herein
and having regard for such legal considerations as we deem relevant, we are of
the opinion that when the terms of the debt securities being offered pursuant to
the Registration Statement and their issue and sale have been duly established
in conformity with the Indenture and in conformity with any applicable law or
agreement or instrument then binding on the Company, and the debt securities
have been duly executed and authenticated in accordance with the terms of the
Indenture and issued and sold as contemplated in the Registration Statement, the
debt securities will constitute legal, valid and binding obligations of the
Company subject to (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws of general application relating to or
affecting the enforcement of creditors' rights, (ii) the effect of
<PAGE> 2
HomeSide Lending, Inc.
March 14, 1997
Page 2
general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, whether considered
in a proceeding in equity or at law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
<PAGE> 1
EXHIBIT 8.1
March __, 1997
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Ladies and Gentlemen:
We have acted as counsel to HomeSide Lending, Inc., a Florida
corporation (the "Company") in connection with the proceedings being taken to
register under the Securities Act of 1933, as amended $1,000,000,000 principal
amount of debt securities pursuant to a Registration Statement on Form S-1 (File
No. 333-21193) filed with the Securities and Exchange Commission (the
"Registration Statement"). The debt securities will be issued pursuant to an
Indenture in the form filed as an exhibit to the Registration Statement.
As such counsel, we have examined such documents as we have deemed
necessary as a basis for the opinions hereinafter expressed. Based upon the
foregoing, and having regard for such legal considerations as we deem relevant,
we are of the opinion that the description under the heading "United States
Federal Income Tax Considerations" in the Prospectus Supplement forming a part
of the Registration Statement fairly describes, subject to the assumptions and
qualifications set forth therein, the material United States federal income tax
consequences to holders of the debt securities under currently applicable law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
<PAGE> 1
Exhibit 10.23
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
HOMESIDE LENDING, INC.,
HONOLULU MORTGAGE COMPANY, INC.,
THE LENDERS PARTIES HERETO,
THE BALANCE LENDERS
PARTIES HERETO,
THE FIRST NATIONAL BANK OF BOSTON,
AS COLLATERAL AGENT,
NATIONSBANK OF TEXAS, N.A.,
AS SYNDICATION AGENT,
THE SENIOR MANAGING AGENT, MANAGING AGENTS AND CO-AGENTS
AND
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
DATED AS OF JANUARY 31, 1997
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS........................................................................ 2
1.1 Defined Terms.................................................................... 2
1.2 Other Definitional Provisions.................................................... 29
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND CAF ADVANCE FACILITY........................... 30
2.1 Tranche A Loans; Tranche A CAF Advances.......................................... 30
2.2 Tranche B Loans; Tranche B CAF Advances.......................................... 31
2.3 Making, Assignment and Purchase of Balance-Based Loans........................... 33
2.4 Funding of Balance-Based Loans; Repayment........................................ 33
2.5 Procedure for Balance-Based Loan Borrowings...................................... 33
2.6 Types of Rate-Based Loans........................................................ 34
2.7 Procedure for Rate-Based Borrowings; Procedure for CAF Advance
Borrowings................................................................. 34
2.9 Swing Line Commitments........................................................... 39
2.10 Minimum Amounts and Maximum Number of Eurodollar Tranches....................... 42
2.11 Interest Rates and Payment Dates for Rate-Based Loans........................... 42
SECTION 3. ADDITIONAL PROVISIONS APPLICABLE TO THE LOANS...................................... 43
3.1 Repayment of Loans; Interest; Evidence of Debt................................... 43
3.2 Fees ........................................................................... 44
3.3 Optional Reductions of Commitments; Mandatory Reductions of
Commitments................................................................ 44
3.4 Optional and Mandatory Prepayments; Net Repayments............................... 45
3.5 Computation of Discounts, Interest and Fees...................................... 47
3.6 Pro Rata Treatment and Payments.................................................. 47
3.7 Inability to Determine Interest Rate............................................. 49
3.8 Illegality....................................................................... 50
3.9 Requirements of Law.............................................................. 51
3.10 Taxes........................................................................... 52
3.11 Indemnity....................................................................... 53
SECTION 4. BORROWING BASE AND ELIGIBLE COLLATERAL............................................. 54
4.1 Tranche A Borrowing Base......................................................... 54
4.2 Tranche B Borrowing Base......................................................... 55
4.3 Borrowing Base Definitions....................................................... 56
4.4 Waiver of Requirements; Mark-to-Market........................................... 72
SECTION 5. REPRESENTATIONS AND WARRANTIES..................................................... 73
5.1 Financial Condition.............................................................. 73
5.2 No Change........................................................................ 75
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.3 Corporate Existence; Compliance with Law......................................... 75
5.4 Corporate Power; Authorization; Enforceable Obligations.......................... 76
5.5 No Legal Bar..................................................................... 76
5.6 No Material Litigation........................................................... 76
5.7 No Default....................................................................... 76
5.8 Ownership of Property; Liens..................................................... 76
5.9 Intellectual Property............................................................ 76
5.10 Taxes........................................................................... 77
5.11 Federal Regulations............................................................. 77
5.12 ERISA........................................................................... 77
5.13 Investment Company Act; Other Regulations....................................... 78
5.14 Subsidiaries.................................................................... 78
5.15 Purpose of Loans................................................................ 78
5.16 Environmental Matters........................................................... 78
5.17 Capitalization.................................................................. 79
5.18 Disclosure...................................................................... 79
SECTION 6. CONDITIONS PRECEDENT............................................................... 80
6.1 Conditions to Initial Loans...................................................... 80
6.2 Conditions to Each Loan.......................................................... 81
SECTION 7. AFFIRMATIVE COVENANTS.............................................................. 83
7.1 Financial Statements............................................................. 83
7.2 Certificates; Other Information.................................................. 83
7.3 Payment of Obligations........................................................... 85
7.4 Conduct of Business and Maintenance of Existence................................. 85
7.5 Maintenance of Property; Insurance; Risk Management.............................. 85
7.6 Inspection of Property; Books and Records; Discussions........................... 86
7.7 Notices.......................................................................... 86
7.8 Environmental Laws............................................................... 87
7.9 Further Assurances............................................................... 87
7.10 Security Events................................................................. 88
7.11 Additional Collateral........................................................... 88
7.12 Compliance With Other Loan Documents............................................ 89
7.13 Maintenance of Agency Status.................................................... 89
7.14 GNMA Acknowledgement Agreements................................................. 89
SECTION 8. NEGATIVE COVENANTS................................................................. 89
8.1 Financial Condition Covenants.................................................... 89
8.2 Limitation on Indebtedness....................................................... 90
8.3 Limitation on Liens.............................................................. 91
8.4 Limitation on Fundamental Changes................................................ 93
8.5 Limitation on Sale of Assets..................................................... 93
8.6 Limitation on Leases............................................................. 93
8.7 Limitation on Sales and Leasebacks............................................... 93
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.8 Limitation on Recourse Servicing................................................. 94
8.9 Limitation on Restricted Payments................................................ 94
8.10 Limitation on Capital Expenditures.............................................. 95
8.11 Limitation on Investments, Loans and Advances................................... 95
8.12 Limitation on Optional Payments and Modifications of Certain
Instruments and Agreements................................................. 95
8.13 Limitation on Transactions with Affiliates...................................... 96
8.14 Limitation on Negative Pledge Clauses........................................... 96
8.15 Limitation on Lines of Business................................................. 96
8.16 Limitation on Changes in Fiscal Year............................................ 96
SECTION 9. EVENTS OF DEFAULT................................................................ 96
SECTION 10. THE ADMINISTRATIVE AGENT; THE COLLATERAL AGENT ...................................100
10.1 Appointment.....................................................................100
10.2 Delegation of Duties............................................................100
10.3 Exculpatory Provisions..........................................................100
10.4 Reliance by Administrative Agent................................................100
10.5 Notice of Default...............................................................101
10.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders........101
10.7 Indemnification.................................................................102
10.8 Administrative Agent and Collateral Agent in Its Individual Capacity............102
10.9 Successor Administrative Agent..................................................102
10.10 Successor Collateral Agent.....................................................103
10.11 Concerning the Collateral Agent and the Security Agreements....................103
SECTION 11. MISCELLANEOUS.....................................................................103
11.1 Amendments and Waivers..........................................................103
11.2 Notices.........................................................................104
11.3 No Waiver; Cumulative Remedies..................................................105
11.4 Survival of Representations and Warranties......................................105
11.5 Payment of Expenses and Taxes...................................................105
11.6 Successors and Assigns; Participations and Assignments..........................106
11.7 Adjustments; Set-off............................................................109
11.8 Balance Lenders.................................................................109
11.9 Release of Collateral Upon Occurrence of Positive Security Event................109
11.10 Authority of HomeSide on Behalf of HonoMo......................................110
11.11 Termination of HonoMo as Borrower..............................................110
11.12 Counterparts...................................................................110
11.13 Severability...................................................................110
11.14 Integration....................................................................111
11.15 GOVERNING LAW..................................................................111
11.16 Submission To Jurisdiction; Waivers............................................111
11.17 Acknowledgements...............................................................111
11.18 WAIVERS OF JURY TRIAL..........................................................112
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULES PAGE
----
<S> <C>
Schedule I Names, Addresses and Commitments of Lenders
Schedule II Approved Investors
Schedule 5.1 Certain Contingent Liabilities
Schedule 5.4 Consents, Etc.
Schedule 5.6 Litigation
Schedule 5.14 Subsidiary Guarantors
Schedule 5.17 Capitalization
Schedule 8.2 Certain Existing Indebtedness
Schedule 8.3 Certain Existing Liens
Schedule 8.13 Certain Affiliate Transactions
EXHIBITS
Exhibit A-1 Form of Balance-Based Note
Exhibit A-2 Form of Rate-Based Note
Exhibit A-3 Form of Swing Line Note
Exhibit A-4 Form of CAF Advance Note
Exhibit B Form of Balance Lender Agreement
Exhibit C-1 Form of Holdings Guarantee
Exhibit C-2 Form of Subsidiaries Guarantee
Exhibit C-3 Form of BMC Guarantee
Exhibit C-4 Form of HomeSide Guarantee
Exhibit D-1 Form of HomeSide Security Agreement
Exhibit D-2 Form of BMC Security Agreement
Exhibit D-3 Form of HonoMo Security Agreement
Exhibit E-1 Form of Holdings Pledge Agreement
Exhibit E-2 Form of HomeSide Pledge Agreement
Exhibit E-3 Form of BMC Pledge Agreement
Exhibit F-1 Form of Borrowing Notice (ABR/Swing Line)
Exhibit F-2 Form of Borrowing Notice (Eurodollar/Balance-Based)/Conversion Notice
Exhibit F-3 Form of Payment Notice
Exhibit G Form of Closing Certificate
Exhibit H-1 Form of Legal Opinion of Bingham, Dana & Gould, LLP
Exhibit H-2 Form of Legal Opinion of Hutchins, Wheeler & Dittmar, a Professional
Corporation
Exhibit H-3 Form of Legal Opinion of General Counsel of HomeSide
Exhibit H-4 Form of Legal Opinion of Holland & Knight
Exhibit H-5 Form of Legal Opinion of Hawaii Counsel
Exhibit I Form of Assignment and Acceptance
Exhibit J Form of Intercreditor Agreement
Exhibit K-1 Form of Holdings Second Lien Pledge Agreement
Exhibit K-2 Form of BMC Second Lien Pledge Agreement
Exhibit L Form of CAF Advance Request
Exhibit M Form of CAF Advance Offer
</TABLE>
- iv -
<PAGE> 6
Exhibit N Form of CAF Advance Confirmation
- v -
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of January 31,
1997, among (i) HOMESIDE LENDING, INC., a Florida corporation ("HOMESIDE"), (ii)
HONOLULU MORTGAGE COMPANY, INC., a Hawaii corporation ("HONOMO"; each of
HomeSide and HonoMo, a "BORROWER", and, collectively, the
"BORROWERS"), (iii) the several banks and other financial institutions from time
to time parties to this Agreement (collectively, the "LENDERS"), (iv) the
Lenders from time to time designated as Balance Lenders pursuant to subsection
11.8 (in such capacity, collectively, the "BALANCE LENDERS"), (v) THE FIRST
NATIONAL BANK OF BOSTON, as Collateral Agent (in such capacity, the "COLLATERAL
AGENT"), (vi) NATIONSBANK OF TEXAS, N.A., as Syndication Agent, (vii) the Senior
Managing Agent, Managing Agents and Co-Agents and (viii) THE CHASE MANHATTAN
BANK, as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
December 11, 1995, as amended by Amendment No. 1, dated as of March 15, 1996 (as
amended from time to time, the "BBMC STOCK PURCHASE AGREEMENT"), between The
First National Bank of Boston ("BANK OF BOSTON") and HomeSide, Inc., a Delaware
corporation ("HOLDINGS"), Holdings acquired (as hereinafter defined, the "BBMC
ACQUISITION") 100% of the issued and outstanding capital stock of HomeSide on
March 15, 1996 (the "BBMC CLOSING DATE");
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
March 4, 1996, as amended by Amendment No. 1, dated as of May 31, 1996 (as
amended from time to time, the "BMC STOCK PURCHASE AGREEMENT"), between Holdings
and Barnett Banks, Inc. ("BARNETT"), on May 31, 1996 (the "BMC Closing Date")
(i) Holdings acquired (as hereinafter defined, the "BMC ACQUISITION") 100% of
the issued and outstanding capital stock of Barnett Mortgage Company, a Florida
corporation ("BMC") (now known as HomeSide Holdings, Inc.), (ii) BancPLUS
Financial Corp. ("BANCPLUS FINANCIAL"), a Texas corporation and a wholly owned
subsidiary of BMC, merged with and into its wholly owned subsidiary, BancPLUS
Mortgage Company ("BANCPLUS"), a Texas corporation and the corporate parent of
HonoMo, with BancPLUS being the surviving corporation, (iii) BancPLUS thereupon
merged with and into HomeSide, with HomeSide being the surviving corporation and
HonoMo ultimately becoming a second-tier wholly owned subsidiary of HomeSide,
and (iv) Holdings thereupon contributed all of the capital stock of HomeSide to
BMC, resulting in HomeSide becoming a wholly owned subsidiary of BMC;
WHEREAS, the BBMC Acquisition and the BMC Acquisition were
financed, in part, with proceeds of loans made under the Credit Agreement, dated
as of May 31, 1996 (as heretofore amended or otherwise modified, the "EXISTING
CREDIT AGREEMENT"), among the Borrowers, certain of the Lenders, the Collateral
Agent, the Administrative Agent (under its former name, Chemical Bank) and
others;
WHEREAS, in addition to providing financing for the BBMC
Acquisition and the BMC Acquisition, the Existing Credit Agreement provided
credit facilities to finance the
<PAGE> 8
2
Borrowers' origination and acquisition of residential mortgage loans and
mortgage servicing rights and their ongoing working capital and general
corporate needs;
WHEREAS, the Borrowers wish to amend and restate the Existing
Credit Agreement; and
WHEREAS, the Lenders are willing to amend and restate the
Existing Credit Agreement on and subject to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree that on the Closing Date the Existing Credit Agreement will
be amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes of this definition: "BASE CD
RATE" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate; and "THREE-MONTH SECONDARY CD RATE"
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day)
by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate
shall not be so reported on such day or such next preceding Business
Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City
negotiable certificate of deposit dealers of recognized standing
selected by it. Any change in the ABR due to a change in the Prime
Rate, the Base C/D Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate, the Base C/D Rate or the Federal Funds
Effective Rate, respectively.
"ABR LOANS": Rate-Based Loans bearing interest based upon the
ABR.
<PAGE> 9
3
"ACQUISITIONS": the collective reference to the BBMC
Acquisition and the BMC Acquisition.
"ADJUSTED CONSOLIDATED TANGIBLE NET WORTH": at any time, the
sum of (i) Consolidated Tangible Net Worth, plus (ii) the amount of
carryover basis in connection with the Acquisitions, plus (iii) the
Appraised Value of the Eligible Servicing Portfolio as set forth in the
Appraisal thereof delivered pursuant to subsection 7.2(h) setting forth
such Appraised Value as at such time.
"ADMINISTRATIVE AGENT": as defined in the Preamble to this
Agreement.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Agency": FHLMC, FNMA or GNMA.
------
"AGGREGATE AVAILABLE TRANCHE A COMMITMENTS": at any time, an
amount equal to the excess, if any, of (a) the aggregate Commitments
then in effect over (b) the aggregate principal amount of Loans then
outstanding.
"AGGREGATE AVAILABLE TRANCHE B COMMITMENTS": at any time, an
amount equal to the excess, if any, of (a) the aggregate Tranche B
Commitments then in effect over (b) the aggregate principal amount of
all Tranche B Loans, Tranche B Swing Line Loans and Tranche B CAF
Advances then outstanding.
"AGREEMENT": this Amended and Restated Credit Agreement, as
amended, supplemented or otherwise modified from time to time.
<PAGE> 10
4
<TABLE>
"APPLICABLE MARGIN": (a) with respect to each day during each
Interest Period relating to Balance-Based Loans, a rate per annum based
on the Rating Level in effect on the date which is two Business Days
prior to the first day of such Interest Period and (b) with respect to
each day during each Interest Period relating to Rate-Based Loans, a
rate per annum based on the Rating Level in effect on such day, in each
case as set forth below:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Applicable Margin Applicable Margin Applicable Margin
for Tranche A for Tranche B for Tranche B
Rating Level Loans Advance Loans Portfolio Loans
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rating I .350% .350% .550%
Rating II .375% .375% .625%
Rating III .375% .375% .625%
Rating IV .450% .450% .750%
Rating V .600% .600% 1.00%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
"APPRAISAL": an appraisal report with respect to the Eligible
Servicing Portfolio by an independent appraiser acceptable to the
Administrative Agent.
"Assignee": as defined in subsection 11.6(c).
--------
"AVAILABLE COMMITMENT": at any time for any Lender, an amount
equal to the excess, if any, of (a) such Lender's Commitment then in
effect over (b) the aggregate outstanding principal amount of all
Committed Loans then owing to such Lender.
"BALANCE-BASED LOANS": the collective reference to
Balance-Based Tranche A Loans and Balance-Based Tranche B Loans.
"BALANCE-BASED TRANCHE A LOANS": as defined in subsection
2.1(a).
"BALANCE-BASED TRANCHE B LOANS": as defined in subsection
2.2(a).
"BALANCE LENDERS": as defined in the Preamble to this
Agreement.
"BALANCE LENDER AGREEMENT": each Balance Lender Agreement,
substantially in the form of Exhibit B, entered into by HomeSide and a
Balance Lender pursuant to subsection 11.8.
"BALANCE LENDER DISCOUNT": with respect to each Balance-Based
Loan, an amount determined by the Administrative Agent with respect to
such Balance-Based Loan such that, when the Principal Amount of such
Balance-Based Loan is repaid by the applicable Borrower on the last day
of the Interest Period with respect thereto, such Principal Amount will
be equivalent to the proceeds of such Balance-Based Loan (net of the
<PAGE> 11
5
Balance Lender Discount) plus interest on such net proceeds calculated
at a rate per annum equal to the Applicable Margin.
"BANCPLUS": as defined in the Preamble to this Agreement.
"BANCPLUS FINANCIAL": as defined in the Preamble to this
Agreement.
"BARNETT": as defined in the Preamble to this Agreement.
"BBMC ACQUISITION": the acquisition on March 15, 1996 of the
capital stock of HomeSide by Holdings pursuant to the BBMC Stock
Purchase Agreement, and the transactions related thereto.
"BBMC CLOSING DATE": as defined in the Preamble to this
Agreement.
"BBMC STOCK PURCHASE AGREEMENT": as defined in the Preamble to
this Agreement.
"BMC": as defined in the Preamble to this Agreement.
"BMC ACQUISITION": the acquisition on May 31, 1996 of the
capital stock of BMC by Holdings pursuant to the BMC Stock Purchase
Agreement, and the transactions related thereto.
"BMC CLOSING DATE": as defined in the Preamble to this
Agreement.
"BMC GUARANTEE": the BMC Guarantee to be executed and
delivered by BMC, substantially in the form of Exhibit C-3, as the same
may be amended, supplemented or otherwise modified from time to time.
"BMC PLEDGE AGREEMENT": the BMC Pledge Agreement to be
executed and delivered by BMC, substantially in the form of Exhibit
E-3, as the same may be amended, supplemented or otherwise modified
from time to time.
"BMC SECURITY AGREEMENT": the Security and Collateral Agency
Agreement to be executed and delivered by BMC, substantially in the
form of Exhibit D-2, as the same may be amended, supplemented or
otherwise modified from time to time.
"BMC STOCK PURCHASE AGREEMENT": as defined in the Preamble to
this Agreement.
"BOARD": the Board of Governors of the Federal Reserve System.
"BORROWER": as defined in the Preamble to this Agreement.
<PAGE> 12
6
"BORROWER SECURITY AGREEMENT": either of the HomeSide Security
Agreement and the HonoMo Security Agreement, as the context may
require.
"BORROWING BASE CERTIFICATE": either of (a) a Tranche A
Borrowing Base Certificate or (b) a Tranche B Borrowing Base
Certificate.
"BORROWING DATE": any Business Day specified in a notice
pursuant to subsection 2.5, 2.7 or 2.9 as a date on which a Borrower
requests the Lenders to make Loans hereunder.
"BUSINESS": as defined in subsection 5.16.
"BUSINESS DAY": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close; PROVIDED, that when such term is used to
describe a day on which a borrowing, payment or interest rate
determination is to be made in respect of a LIBO Rate CAF Advance, such
day shall also be a day on which dealings in foreign currencies and
exchange between banks may be carried on in London, England.
"CAF ADVANCE": each CAF advance made pursuant to subsection
2.1(c) or 2.2(d).
"CAF ADVANCE AVAILABILITY PERIOD": the period from and
including the Closing Date to and including the date which is 7 days
prior to the Termination Date.
"CAF ADVANCE CONFIRMATION": each confirmation by HomeSide of
its acceptance of CAF Advance Offers, which confirmation shall be
substantially in the form of Exhibit N (or in such other form as shall
be specified by the Administrative Agent from time to time) and shall
be delivered to the Administrative Agent by facsimile transmission.
"CAF ADVANCE INTEREST PAYMENT DATE": as to each CAF Advance,
each interest payment date specified by HomeSide for such CAF Advance
in the related CAF Advance Request.
"CAF ADVANCE MATURITY DATE": as to any CAF Advance, the date
specified by HomeSide as such in its acceptance of the related CAF
Advance Offer.
"CAF ADVANCE OFFER": each offer by a Lender to make CAF
Advances pursuant to a CAF Advance Request, which offer shall contain
the information specified in Exhibit M (or in such other form as shall
be specified by the Administrative Agent from time to time) and shall
be delivered to the Administrative Agent by telephone, immediately
confirmed by facsimile transmission.
"CAF ADVANCE REQUEST": each request by HomeSide for Lenders to
submit bids to make CAF Advances, which request shall contain the
information in respect of such
<PAGE> 13
7
requested CAF Advances specified in Exhibit L (or in such other form as
shall be specified by the Administrative Agent from time to time) and
shall be delivered to the Administrative Agent in writing, by
facsimile transmission, or by telephone, immediately confirmed by
facsimile transmission.
"CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank having capital and
surplus in excess of $500,000,000, (c) commercial paper of a domestic
issuer rated at least A-1 by S&P or P-1 by Moody's, (d) securities with
maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may
be) are rated at least A by S&P or A2 by Moody's, or (e) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (d) of this
definition.
"C/D ASSESSMENT RATE": for any day as applied to any ABR Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment
risk classification) within the meaning of 12 C.F.R. [section]327.4
(or any successor provision) to the FDIC (or any successor) for the
FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D RESERVE PERCENTAGE": for any day as applied to any ABR
Loan, that percentage (expressed as a decimal) which is in effect on
such day, as prescribed by the Board for determining the maximum
reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal time deposits
in Dollars having a maturity of 30 days or more.
"CHANGE OF CONTROL": the occurrence of any of the events or
circumstances described in Section 9(k).
"CHASE": The Chase Manhattan Bank, a New York banking
corporation.
<PAGE> 14
8
"CLOSING DATE": the date, on or before February 28, 1997, on
which the conditions precedent set forth in subsection 6.1 shall be
satisfied.
"CODE": the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL": all assets of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"COLLATERAL AGENT": as defined in the Preamble to this
Agreement.
"COMMITMENT": as to any Lender, the collective reference to
such Lender's Tranche A Commitment and Tranche B Commitment.
<TABLE>
"COMMITMENT FEE RATE": for each day during each quarterly
calculation period, a rate per annum based on the Rating Level in
effect on such day, as set forth below:
<CAPTION>
Commitment Fee
RATING LEVEL RATE
------------ --------------
- -------------------------------------------------------------------
<S> <C>
Rating I .100%
Rating II .125%
Rating III .125%
Rating IV .175%
Rating V .250%
</TABLE>
"COMMITMENT PERCENTAGE": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the
aggregate Commitments, or, at any time after the Commitments shall have
expired or terminated, the percentage which the aggregate Principal
Amount of such Lender's Loans then outstanding constitutes of the
aggregate Principal Amount of the Loans then outstanding (including,
with respect to each Lender other than a Swing Line Lender, such
Lender's participating interest in outstanding Swing Line Loans and
excluding, with respect to each Swing Line Lender, the aggregate amount
of participating interests held by other Lenders in such Swing Line
Lender's Swing Line Loans).
"COMMITMENT PERIOD": the period from and including the date
hereof to but not including the Termination Date or such earlier date
on which the Commitments shall terminate as provided herein.
<PAGE> 15
9
"COMMITTED LENDER DISCOUNT": with respect to each
Balance-Based Loan, an amount determined by the Administrative Agent
with respect to such Balance-Based Loan such that, when the Principal
Amount of such Balance-Based Loan is repaid by the applicable Borrower
on the last day of the Interest Period with respect thereto, such
Principal Amount will be equivalent to the proceeds of such
Balance-Based Loan (net of the Committed Lender Discount) plus interest
accrued during such Interest Period on such net proceeds calculated at
a rate per annum equal to (a) in the case of each Balance-Based Loan
other than any Balance-Based Loan made while a Substitute Basis Notice
is outstanding, the Eurodollar Rate plus the Applicable Margin in
respect of such Balance-Based Loan and the applicable Interest Period,
and (b) in the case of each Balance-Based Loan made while a Substitute
Basis Notice is outstanding, the Substitute Basis plus the Applicable
Margin.
"COMMITTED LOANS": all Loans other than CAF Advances.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, which is under common control with HomeSide within the
meaning of Section 4001 of ERISA or is part of a group which includes
HomeSide and which is treated as a single employer under Section 414 of
the Code.
"CONSOLIDATED CASH FLOW": for any period, Consolidated Net
Income for such period, PLUS (a) the sum of
(i) amortization for such period, including,
without limitation, amortization of mortgage servicing rights
(including Purchased Mortgage Servicing Rights, Excess
Servicing and Originated Mortgage Servicing Rights and
impairments thereto) and amortization of intangibles and
goodwill (to the extent deducted in determining such
Consolidated Net Income),
(ii) depreciation for such period,
(iii) any provision for income taxes or any
refunds during such period,
(iv) non-cash expense attributable to the
recordation of fees as a result of the application of SFAS No.
91 for such period,
(v) any increase in loan loss reserves,
including reserves for servicing losses on investor-owned
loans, for such period,
(vi) cash proceeds of the sale of mortgage
servicing rights for such period (to the extent not included
in determining such Consolidated Net Income),
(vii) the amount of increase in reserves for
such period in respect of the value of mortgage servicing
rights,
<PAGE> 16
10
(viii) the loss recorded for such period in
respect of Hedge Contracts,
(ix) cash realized during such period in
respect of Hedge Contracts (to the extent not included in
determining such Consolidated Net Income),
(x) charges attributable to restructuring and
transaction costs incurred (i) on the BBMC Closing Date and
within six months thereafter as a result of the BBMC
Acquisition and (ii) on the Closing Date and within six months
thereafter as a result of the BMC Acquisition, to the extent
of the amount thereof expensed for such period, and
(xi) non-cash charges attributable to loss on
the sale of Mortgage Loans (including any decrease in Excess
Servicing) for such period,
MINUS (b) the sum of
(i) the amount of Restricted Payments paid
during such period as cash dividends to Holdings to service
interest on the Holdings Notes payable during such period and
applied by Holdings thereto during such period (less the
amount of tax benefit resulting therefrom to the extent
applied to reduce cash taxes payable during such period),
(ii) non-cash revenue recorded in respect of
Originated Mortgage Servicing Rights for such period,
(iii) any taxes actually paid in cash during
such period,
(iv) any decrease in loan loss reserves,
including reserves for servicing losses on investor-owned
loans for such period,
(v) non-cash income attributable to the
recordation of fees as a result of the application of SFAS No.
91 for such period,
(vi) non-cash income attributable to gain on
the sale of Mortgage Loans (including any increase in Excess
Servicing) for such period,
(vii) amortization of negative goodwill for
such period (to the extent added in determining such
Consolidated Net Income),
(viii) the amount of decrease in reserves for
such period in respect of the value of mortgage servicing
rights,
(ix) the gain recorded for such period in
respect of Hedge Contracts and
<PAGE> 17
11
(x) cash paid during such period in respect of
Hedge Contracts other than the investment made (i) within one
month after the BBMC Closing Date in Hedge Contracts in
connection with the BBMC Acquisition (to the extent not
deducted in determining such Consolidated Net Income) and (ii)
prior to and within one month after the Closing Date in Hedge
Contracts in connection with the BMC Acquisition (to the
extent not deducted in determining such Consolidated Net
Income),
in each case without duplication and to the extent included in
determining such Consolidated Net Income, and giving effect to the
application of SFAS No. 122.
"CONSOLIDATED INTANGIBLES": at any time, all amounts included
in Consolidated Net Worth of HomeSide at such time which, in accordance
with GAAP, would be classified as intangible assets on a consolidated
balance sheet of HomeSide and its Subsidiaries, including, without
limitation, (a) goodwill (other than negative goodwill), including any
amounts (however designated on the balance sheet) representing the cost
of acquisitions in excess of underlying net tangible assets, and (b)
patents, trademarks, copyrights and other intangibles, but excluding
Purchased Mortgage Servicing Rights, Originated Mortgage Servicing
Rights and Excess Servicing.
"CONSOLIDATED INTEREST AND DIVIDEND EXPENSE": for any period,
the sum of Consolidated Interest Expense for such period plus the
amount of Restricted Payments paid during such period as cash dividends
to Holdings (other than to pay any make- whole or prepayment premium
payable on the Holdings Notes as described in clause (ii) to the
proviso to subsection 8.12 and other than to pay taxes payable by
Holdings as permitted under subsection 8.12) payable during such period
and applied by Holdings in respect of the Holdings Notes during such
period.
"CONSOLIDATED INTEREST EXPENSE": for any period, interest
expense of HomeSide and its Subsidiaries for such period (including,
without limitation, commitment fees payable on the unused portion of
credit facilities and letter of credit fees, but excluding (i) interest
expense attributable to the Tranche A Loans and any other financing of
Mortgage Loan inventory, (ii) interest expense on escrow accounts and
(iii) interest expense in respect of paid-in-full Mortgage Loans), on a
consolidated basis in accordance with GAAP, net of any amount received
by HomeSide from Bank of Boston Corporation or its Affiliates pursuant
to its or their agreement to reimburse certain costs as set forth in
Amendment No. 1 to the BBMC Stock Purchase Agreement.
"CONSOLIDATED LEASE EXPENSE": for any period, the aggregate
rental expenses of HomeSide and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, payable in respect of such
period under leases (other than Financing Leases).
"CONSOLIDATED NET INCOME": for any period, the consolidated
net income (or deficit) of HomeSide and its Subsidiaries for such
period, determined in accordance with GAAP.
<PAGE> 18
12
"CONSOLIDATED NET WORTH": at any time, all amounts which
would, in conformity with GAAP, be included under shareholder's equity
on a consolidated balance sheet of HomeSide and its Subsidiaries as at
such time.
"CONSOLIDATED SERVICING-RELATED DEBT": at any time, the sum of
(i) the aggregate principal amount of the Tranche B Portfolio Loans
outstanding at such time and (ii) the aggregate principal amount
outstanding at such time of any other Indebtedness secured by servicing
rights to the extent permitted under subsections 8.2(j) and 8.3(k) and
the provisions of the Security Agreements.
"CONSOLIDATED TANGIBLE NET WORTH": at any date, the amount
(which may be a negative number) equal to (a) Consolidated Net Worth at
such date LESS (b) the sum of (i) Consolidated Intangibles at such
date, (ii) Purchased Mortgage Servicing Rights at such date, (iii)
Originated Mortgage Servicing Rights at such date and (iv) Excess
Servicing at such date.
"CONSOLIDATED TOTAL LIABILITIES": all liabilities of HomeSide
and its Subsidiaries on a consolidated basis, determined in accordance
with GAAP.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any
of its property is bound.
"CONTINUING DIRECTORS": as defined in Section 9(k).
"DAILY FEDERAL FUNDS RATE": for any day, a fluctuating
interest rate per annum (rounded upward to the nearest 0.01%)
determined (which determination shall be conclusive and binding, absent
manifest error) by the Administrative Agent to be equal to the
overnight federal funds rate (based on the offered side of the market)
as reported on Telerate page 5 (funds source Garvin Guy Butler) at
10:00 a.m. (New York City time) on such date (or, if such date is not a
Business Day, on the preceding Business Day), or, if such rates are not
reported for any day, the average of the quotations at approximately
10:00 a.m. (New York City time) received by the Administrative Agent
from three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
"DEFAULT": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United
States of America.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority
or other Requirements of Law (including common law)
<PAGE> 19
13
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as are now or
may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board) maintained by a member bank of the Federal Reserve System.
"EURODOLLAR BASE RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the average (rounded
to the nearest whole multiple of 1/16 of 1%) of the respective rates
notified to the Administrative Agent by each of the Reference Lenders
as the rate at which such Reference Lender is offered Dollar deposits
at or about 10:00 A.M., New York City time, two Business Days prior to
the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted
for delivery on the first day of such Interest Period for the number of
days comprised therein.
"EURODOLLAR LOANS": Rate-Based Loans bearing interest based
upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan (other than any
Eurodollar Loan made while a Substitute Basis Notice is outstanding), a
rate per annum determined for such day in accordance with the following
formula (rounded upward to the nearest 1/100th of 1%):
EURODOLLAR BASE RATE
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EURODOLLAR TRANCHE": the collective reference to Eurodollar
Loans and Balance-Based Loans as to which all of the then current
Interest Periods begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the same
day).
"EVENT OF DEFAULT": any of the events specified in Section 9,
PROVIDED that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
<PAGE> 20
14
"EXCESS SERVICING": at any date, the amount that would, in
conformity with GAAP, be classified as deferred excess servicing rights
on a consolidated balance sheet of HomeSide and its Subsidiaries at
such date.
"EXISTING CREDIT AGREEMENT": as defined in the Preamble to
this Agreement.
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted
average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"FHLMC": the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FINANCING LEASE": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of such
lessee.
"FIXED RATE CAF ADVANCE": any CAF Advance made pursuant to a
Fixed Rate CAF Advance Request.
"FIXED RATE CAF ADVANCE REQUEST": any CAF Advance Request
requesting the Lenders to offer to make CAF Advances at a fixed rate
(as opposed to a rate composed of the LIBO Rate plus (or minus) a
margin).
"FNMA": the Federal National Mortgage Association and any
successor thereto.
"FUNDING ACCOUNT": (i) with respect to HomeSide, the account
of HomeSide described in Section 6 of the HomeSide Security Agreement,
which will be maintained at the Payment Office as "Warehouse Funding
Account" - Account No. 230-204910, and into which all proceeds of Loans
to HomeSide will be deposited, all amounts made available to HomeSide
from the Settlement Accounts (as defined in the HomeSide Security
Agreement) will be deposited, and from which all Mortgage Loans
purchased or originated by HomeSide will be funded, and (ii) with
respect to HonoMo, either of the accounts of HonoMo described in
Section 6 of the HonoMo Security Agreement, which will be maintained
either (x) at the Payment Office as "Warehouse Funding Account" -
Account No. 304-207306 or (y) at the office of First Hawaiian National
Bank as "Warehouse Funding Account" - Account No. 01- 116-762, and into
which all proceeds of Loans to HonoMo will be deposited, all amounts
made available to HonoMo from the Settlement Accounts (as defined in
the HonoMo Security Agreement) will be deposited, and from which all
Mortgage Loans purchased or originated by HonoMo will be funded.
<PAGE> 21
15
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time (subject to the
provisions of subsection 1.2(b)).
"GNMA": the Government National Mortgage Association and any
successor thereto.
"GOVERNMENTAL AUTHORITY": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), without duplication, any obligation of (a) the guaranteeing
person or (b) another Person (including, without limitation, any bank
under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other obligations
(the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY
OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether
or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities
or services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in
respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or collection
in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower
of (a) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is
made and (b) the maximum amount for which such guaranteeing person may
be liable pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the maximum
amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated
liability in respect thereof as determined by HomeSide in good faith.
"GUARANTEES": the collective reference to the Subsidiaries
Guarantee, the BMC Guarantee, the Holdings Guarantee and the HomeSide
Guarantee.
"GUARANTOR": each of Holdings, BMC, HomeSide and the
Subsidiary Guarantors.
"HEDGE TERMINATION OBLIGATION": any termination amount or
other amount payable by HomeSide or any of its Subsidiaries upon the
early termination, by reason of
<PAGE> 22
16
the occurrence of a default or other termination event thereunder, of
any interest rate protection agreement, interest rate option, interest
rate cap or other interest rate hedge arrangement providing to HomeSide
or any of its Subsidiaries protection against changes in interest
rates.
"HEDGING AGREEMENT": any interest rate protection agreement,
interest rate option, interest rate cap or other interest rate hedge
arrangement entered into with a Lender by HomeSide or any of its
Subsidiaries providing to HomeSide or any of its Subsidiaries
protection against changes in interest rates.
"Holdings": as defined in the Preamble to this Agreement.
--------
"HOLDINGS GUARANTEE": the Amended and Restated Holdings
Guarantee to be executed and delivered by Holdings, substantially in
the form of Exhibit C-1, as the same may be amended, supplemented or
otherwise modified from time to time.
"HOLDINGS NOTES": the Senior Secured Second Priority Notes Due
2003 issued by Holdings under the Indenture in the aggregate principal
amount of $200,000,000.
"HOLDINGS PLEDGE AGREEMENT": the Amended and Restated Holdings
Pledge Agreement to be executed and delivered by Holdings,
substantially in the form of Exhibit E-1, as the same may be amended,
supplemented or otherwise modified from time to time.
"HOMESIDE GUARANTEE": the Amended and Restated HomeSide
Guarantee to be executed and delivered by HomeSide, substantially in
the form of Exhibit C-4, as the same may be amended, supplemented or
otherwise modified from time to time.
"HOMESIDE PLEDGE AGREEMENT": the Amended and Restated HomeSide
Pledge Agreement to be executed and delivered by HomeSide,
substantially in the form of Exhibit E-2, as the same may be amended,
supplemented or otherwise modified from time to time.
"HOMESIDE SECURITY AGREEMENT": the Amended and Restated
Security and Collateral Agency Agreement to be executed and delivered
by HomeSide, substantially in the form of Exhibit D-1, as the same may
be amended, supplemented or otherwise modified from time to time.
"HOMESIDE TRANCHE A BORROWING BASE": as defined in subsection
4.1.
"HOMESIDE TRANCHE B BORROWING BASE": as defined in subsection
4.2.
"HONOMO SECURITY AGREEMENT": the Amended and Restated Security
and Collateral Agency Agreement to be executed and delivered by HonoMo,
substantially in
<PAGE> 23
17
the form of Exhibit D-3, as the same may be amended, supplemented or
otherwise modified from time to time.
"HONOMO TRANCHE A BORROWING BASE": as defined in subsection
4.1.
"HONOMO TRANCHE B BORROWING BASE": as defined in subsection
4.2.
"HONOMO TRANCHE A SUBLIMIT": an amount equal to $100,000,000;
PROVIDED that, subject to compliance with the other provisions of this
Agreement, HomeSide may, by notice to the Administrative Agent, reduce
the amount of the HonoMo Tranche A Sublimit from time to time and, if
so reduced, increase such amount from time to time, so long as such
amount does not at any time exceed $100,000,000.
"HONOMO TRANCHE B SUBLIMIT": an amount equal to $25,000,000;
PROVIDED that, subject to compliance with the other provisions of this
Agreement, HomeSide may, by notice to the Administrative Agent, reduce
the amount of the HonoMo Tranche B Sublimit from time to time and, if
so reduced, increase such amount from time to time, so long as such
amount does not at any time exceed $25,000,000.
"INDENTURE": the Indenture, dated as of May 14, 1996, among
Holdings and The Bank of New York, as Trustee thereunder, pursuant to
which the Holdings Notes are issued.
"INDEBTEDNESS": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness of
such Person which is evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances issued or
created for the account of such Person, (e) all liabilities secured by
any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof and
(f) without duplication, all Guarantee Obligations; PROVIDED that
obligations under Hedge Contracts shall be excluded from this
definition of Indebtedness to the extent that they would otherwise be
included.
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"INTERCREDITOR AGREEMENT": the Intercreditor Agreement
executed and delivered by Holdings, BMC, the Administrative Agent and
The Bank of New York, as trustee under the Indenture, substantially in
the form of Exhibit J, as the same may be amended, supplemented or
otherwise modified from time to time.
<PAGE> 24
18
"INTEREST PAYMENT DATE": with respect to (a) any Eurodollar
Loan having an Interest Period of one, two or three months' duration,
the last day of such Interest Period, (b) any Eurodollar Loan having an
Interest Period of six months' duration, the first Business Day to
occur at least three months after the first day of such Interest Period
and the last day of such Interest Period, (c) any ABR Loan, the tenth
day following the last day of each calendar month (or, if such tenth
day is not a Business Day, the Business Day first preceding such tenth
day) while such ABR Loan is outstanding and the date of payment in full
of such ABR Loan, (d) any Swing Line Loan, the tenth day following the
last day of each calendar month (or, if such tenth day is not a
Business Day, the Business Day first preceding such tenth day) while
such Swing Line Loan is outstanding and the date of payment in full of
such Swing Line Loan and (e) any CAF Advance, each interest payment
date specified by HomeSide for such CAF Advance in the related CAF
Advance Request.
"INTEREST PERIOD": (a) with respect to each Balance-Based
Loan, the period commencing on the Borrowing Date with respect to such
Balance-Based Loan and ending one month thereafter; PROVIDED, that the
foregoing provisions of this paragraph (a) are subject to the
following:
(i) if any Interest Period would otherwise end
on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest
Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding
Business Day; and
(ii) any Interest Period that would otherwise
extend beyond the Termination Date shall end on the
Termination Date; and
(b) with respect to any Eurodollar Loan:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be, with respect
to such Loan and ending one, two, three or six months
thereafter, as selected by the applicable Borrower in its
notice of borrowing or notice of conversion, as the case may
be, given with respect thereto; and
(ii) thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to
such Loan and ending one, two, three or six months thereafter,
as selected by the applicable Borrower by irrevocable notice
to the Administrative Agent not less than three Business Days
prior to the last day of the then current Interest Period with
respect thereto;
PROVIDED, that the foregoing provisions of this paragraph (b) are
subject to the following:
<PAGE> 25
19
(A) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(B) any Interest Period in respect of any such Loans
that would otherwise extend beyond the Termination Date shall
end on the Termination Date; and
(C) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of a calendar month.
"IPO": the initial public offering of common stock of
Holdings.
"Lender": as defined in the Preamble to this Agreement.
------
"LETTER AGREEMENT": the Fee Letter, dated January 7, 1997,
among HomeSide, Chase and Chase Securities Inc. relating to the credit
facility made available pursuant to this Agreement.
"LIBO RATE": in respect of any LIBO Rate CAF Advance, the
London interbank offered rate for deposits in Dollars for the period
commencing on the date of such CAF Advance and ending on the CAF
Advance Maturity Date with respect thereto which appears on Telerate
Page 3750 as of 11:00 A.M., London time, two Business Days prior to the
beginning of such period.
"LIBO RATE CAF ADVANCE": any CAF Advance made pursuant to a
LIBO Rate CAF Advance Request.
"LIBO RATE CAF ADVANCE REQUEST": any CAF Advance Request
requesting the Lenders to offer to make CAF Advances at an interest
rate equal to the LIBO Rate plus (or minus) a margin.
"LIEN": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and
any Financing Lease having substantially the same economic effect as
any of the foregoing).
"LOAN": any loan (including any CAF Advance) made by any
Lender pursuant to this Agreement.
<PAGE> 26
20
"LOAN DOCUMENTS": this Agreement, any Notes, the Guarantees,
the Security Documents and the Intercreditor Agreement.
"LOAN PARTIES": HomeSide, HonoMo, BMC, Holdings and each
Subsidiary of HomeSide which is a party to a Loan Document.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a)
the business, operations, property or condition (financial or
otherwise) of Holdings, BMC, HomeSide and its Subsidiaries taken as a
whole or (b) the validity or enforceability of this Agreement or any of
the other Loan Documents or the rights or remedies of the
Administrative Agent, the Collateral Agent or the Lenders hereunder or
thereunder.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"MATURITY DATE": (a) with respect to each Balance-Based Loan,
the last day of the Interest Period applicable thereto, (b) with
respect to each Rate-Based Loan and Swing Line Loan, the Termination
Date and (c) with respect to each CAF Advance, the CAF Advance Maturity
Date with respect thereto.
"Moody's": Moody's Investors Service, Inc.
-------
"MTN DEDUCTION AMOUNT": at any time, the amount by which (a)
the aggregate principal amount of Permitted Medium Term Debt
outstanding at such time exceeds (b) the lesser of (i) 70% of the
Appraised Value of Ineligible Servicing (as defined below) at such time
(determined, for the purposes of this definition only, as if the
Ineligible Servicing constituted the Eligible Servicing Portfolio as
used in the definition of Appraised Value) and (ii) the 1.35% of the
aggregate unpaid principal balance of the underlying Mortgage Loans in
respect of the Ineligible Servicing at such time. For the purposes of
this definition only, "Ineligible Servicing" shall mean, at any time,
Non-Recourse Servicing Rights that would constitute Eligible Servicing
Portfolio but for failing to satisfy clause (b) of the definition
thereof.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NEGATIVE SECURITY EVENT": the occurrence of any of the
following events during a Positive Security Period, and the giving of
notice to HomeSide by the Administrative Agent that such event has
occurred and, in the case of clause (c), has been determined by the
Required Banks to constitute a Negative Security Event: (a) HomeSide's
unsecured long-term senior non credit-enhanced debt or, if HomeSide
does not have such debt to be rated, its public "counterparty rating"
issued for its unsecured senior obligations under
<PAGE> 27
21
financial contracts, is rated below BBB by S&P or below Baa2 by
Moody's, (b) HomeSide's long-term senior unsecured non-credit- enhanced
debt shall be unrated by both S&P and Moody's or (c) an Event of
Default shall occur and be continuing; for purposes of this Agreement,
(i) the effectiveness of a Negative Security Event shall continue from
the occurrence thereof pursuant to this definition until the occurrence
thereafter of a Positive Security Event.
"NEGATIVE SECURITY PERIOD": shall mean (i) each period
commencing upon the occurrence of a Negative Security Event and ending
upon the occurrence of a Positive Security Event and (ii) if an event
specified in either clause (a) or (b) of the definition of Negative
Security Event shall have occurred and is in effect on the Closing
Date, from the Closing Date until the first occurrence of a Positive
Security Event thereafter.
"NET CASH PROCEEDS": (a) in connection with any sale or
disposition, the cash proceeds (including any payments received by way
of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise) of
such sale or disposition net of all reasonable legal fees, accountants'
fees, investment banking fees, brokerage commissions, survey costs,
title insurance premiums, required debt payments (other than pursuant
hereto), amounts required to be paid to any Person (other than either
Borrower) owning a legal or beneficial interest in the assets subject
to such sale or disposition, reasonable amounts to be provided by
HomeSide as a reserve, in accordance with GAAP, against any liabilities
associated with such sale or disposition and retained by HomeSide
(provided, that, if any amount of such reserve shall be released or
reversed, the amount of such release or reversal shall be "Net Cash
Proceeds"), and other customary fees and expenses in connection
therewith and net of taxes paid or payable as a result thereof and net
of purchase price adjustments which are in amounts ascertainable on the
date of such sale or disposition and which are reasonably expected to
be payable in connection therewith within 6 months of such date and (b)
in connection with any issuance of any equity or debt securities or
instruments or the incurrence of loans, the cash proceeds (including
any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise) received from such issuance or
incurrence, net of all reasonable investment banking fees, legal fees,
accountants fees, underwriting discounts and commissions and other
customary fees and expenses in connection therewith, PROVIDED that
notwithstanding the foregoing, fees described in clauses (a) or (b)
above and payable to an Affiliate of HomeSide shall be deducted in
determining such Net Cash Proceeds only to the extent such fees satisfy
the provisions of subsection 8.13.
"Non-Excluded Taxes": as defined in subsection 3.10.
------------------
"Note": as defined in subsection 3.1(e).
----
"ORIGINATED MORTGAGE SERVICING RIGHTS": at any date, all
amounts which would, in conformity with GAAP, be capitalized as the
cost of acquiring mortgage servicing
<PAGE> 28
22
rights via loan origination activities on a consolidated balance sheet
of HomeSide and its Subsidiaries at such date.
"Participant": as defined in subsection 11.6(b).
-----------
"PAYMENT OFFICE": the office of the Administrative Agent, c/o
Chase Loan and Agency Services Group, located at One Chase Manhattan
Plaza, Eighth Floor, New York, New York 10081.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any successor thereto.
"PERMITTED COMMERCIAL PAPER": unsecured short-term commercial
paper issued by HomeSide with an original tenor of not greater than 360
days.
"PERMITTED MEDIUM TERM DEBT": unsecured medium-term notes
issued by HomeSide (i) having material covenants and events of default
that are no more restrictive than the corresponding terms of this
Agreement, taking into account customary differences in the nature of
certain covenants, it being agreed that such provisions no more
restrictive than the corresponding provisions of the Holdings Notes
will satisfy such requirement set forth above in this definition (as
certified by HomeSide in a certificate of a Responsible Officer thereof
and delivered to the Administrative Agent and the Lenders prior to the
issuance thereof), and (ii) otherwise complying with all applicable
provisions of this Agreement (including, without limitation, subsection
8.14).
"PERSON": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, Governmental Authority or other
entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which HomeSide or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENTS": the collective reference to the Holdings
Pledge Agreement, the BMC Pledge Agreement and the HomeSide Pledge
Agreement.
"POSITIVE SECURITY EVENT": the occurrence of either of the
following events during a Negative Security Period, and the giving of
notice to HomeSide by the Administrative Agent that such event has
occurred and, in the case of clause (b), has been determined by the
Required Banks to constitute a Positive Security Event: (a) if such
Negative Security Period occurred as a result of an event described in
clause (a) or (b) of the definition of Negative Security Event,
HomeSide's unsecured long-term senior non credit-enhanced debt or, if
HomeSide does not have such debt to be rated, its public "counterparty
rating" issued for its unsecured senior obligations under financial
contracts,
<PAGE> 29
23
is rated at least BBB by S&P and at least Baa2 by Moody's or (b) if an
Event of Default gave rise to such Negative Security Event (and the
conditions in clause (a) are also satisfied), such Event of Default
shall no longer be continuing.
"POSITIVE SECURITY PERIOD": shall mean (i) each period
commencing upon the occurrence of a Positive Security Event and ending
upon the occurrence of a Negative Security Event and (ii) if the events
specified in clause (a) of the definition of Positive Security Event
shall have occurred and are in effect on the Closing Date, from the
Closing Date until the first occurrence of a Negative Security Event
thereafter.
"POST-DEFAULT RATE": (a) with respect to any Committed Loan, a
rate per annum equal to 2% above the rate otherwise applicable thereto
(which, in the case of a Balance-Based Loan, shall be the rate with
respect thereto set forth in clause (a) or (b), as applicable, of the
definition of "Committed Lender Discount"), and with respect to any
other amount payable hereunder, a rate per annum equal to 2% above the
ABR (plus the Applicable Margin for ABR Loans, if any, then in effect)
and (b) with respect to any CAF Advance, (i) from the date on which the
Post-Default Rate becomes applicable until the stated CAF Advance
Maturity Date of such CAF Advance, a rate per annum which is 2% above
the rate which would otherwise be applicable to such CAF Advance, and
(ii) for each day thereafter, a rate per annum which is 2% above the
ABR (plus the Applicable Margin for ABR Loans, if any, then in effect).
"Premises": as defined in subsection 5.16.
--------
"PRIME RATE": the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended to
be the lowest rate of interest charged by Chase in connection with
extensions of credit to debtors).
"PRINCIPAL AMOUNT": (a) with respect to each Balance-Based
Loan, the principal amount thereof required to be repaid on the last
day of the Interest Period applicable thereto to the Lenders holding
such Balance-Based Loan, such principal amount being composed of the
actual amount of such Balance-Based Loan funded (or deemed funded
pursuant to subsection 3.4(f)) to the Borrowers on the Borrowing Date
with respect thereto, plus the Balance Lender Discount applicable
thereto, and (b) with respect to each Loan other than a Balance-Based
Loan, the actual amount of such Loan funded to the Borrowers on the
Borrowing Date with respect thereto. References herein to the
"principal amount" of any Loan shall refer to such Principal Amount in
respect thereof.
"PURCHASE COMMITMENT": (a) a mandatory delivery commitment
which obligates a Borrower to deliver a mortgage loan or a pool of
mortgage loans to a purchaser thereof for the amount and yield
specified therein, (b) an optional delivery commitment which grants a
Borrower an option to deliver a mortgage loan or a pool of mortgage
loans to a purchaser thereof, but upon delivery thereof by the
applicable Borrower to such purchaser, such purchaser is obligated to
acquire the delivered mortgage loans for the
<PAGE> 30
24
amount and yield specified therein or (c) to the extent not included in
the foregoing, any commitment pursuant to which a Borrower may deliver
mortgage-backed securities for sale.
"PURCHASED MORTGAGE SERVICING RIGHTS": at any date, all
amounts which would, in conformity with GAAP, be capitalized as the
cost of acquiring mortgage servicing rights via purchase transactions
on a consolidated balance sheet of HomeSide and its Subsidiaries at
such date.
"RATE-BASED LOANS": the collective reference to Rate-Based
Tranche A Loans and Rate-Based Tranche B Loans.
"Rate-Based Tranche A Loans": as defined in subsection 2.1(b).
--------------------------
"Rate-Based Tranche B Loans": as defined in subsection 2.2(b).
--------------------------
"Rating Agencies": collectively, S&P and Moody's.
---------------
"RATINGS": the rating in effect for HomeSide's long-term
senior unsecured, non credit-enhanced debt as announced by the
applicable Rating Agency, or, if HomeSide does not have such debt to be
rated, its public "counterparty rating" issued for its unsecured senior
obligations under financial contracts and then in effect. Ratings of
the Rating Agencies are sometimes referred to herein as the "S&P
Rating" and the "Moody's Rating", respectively.
"RATING LEVEL": the respective Ratings set forth below
opposite each of "Rating I", "Rating II", "Rating III", "Rating IV" and
"Rating V" below:
Rating I greater than or equal to A- by S&P AND A3 by
Moody's
Rating II equal to BBB+ by S&P and Baal by Moody's
---
Rating III equal to BBB by S&P and Baa2 by Moody's
---
Rating IV equal to BBB- by S&P and Baa3 by Moody's
---
Rating V equal to or less than BB+, or unrated, by S&P or
Ba1, or unrated, by Moody's
PROVIDED that in the event that at any time the Rating of one Rating
Agency differs from the Rating of the other Rating Agency then in
effect (i) by two increments or more, the applicable Rating Level shall
be that which would apply to a Rating one increment lower than the
higher of the Moody's Rating and the S&P Rating or (ii) by one
increment, the
<PAGE> 31
25
applicable Rating Level shall be that which would apply to the higher
of the Moody's Rating and the S&P Rating.
"REFERENCE LENDERS": Chase, NationsBank of Texas, N.A., and
Bankers Trust Company.
"REFUNDING BORROWING": a borrowing of Committed Loans which,
after application of the proceeds thereof and, with respect to
Balance-Based Loans, the assignment transactions contemplated by
subsection 2.3, results in no net increase in the Principal Amount of
Committed Loans owing to any Lender.
"register": as defined in subsection 11.6(d).
--------
"REGULATION U": Regulation U of the Board as in effect from
time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. [section]2615.
"REQUIRED LENDERS": at any time, Lenders the Commitment
Percentages of which aggregate at least 51%.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer or the
president of the applicable Borrower or, with respect to financial
matters, the chief financial officer of the applicable Borrower.
"restricted payments": as defined in subsection 8.9.
-------------------
"S&P": Standard & Poor's Ratings Services.
---
"SECOND LIEN PLEDGE AGREEMENTS": the collective reference to
(i) the Pledge Agreement, dated as of May 14, 1996, made by Holdings in
favor of The Bank of New York, as trustee under the Indenture, a copy
of which is attached hereto as Exhibit K-1, and (ii) the Pledge
Agreement, dated as of May 31, 1996, made by BMC in favor of The Bank
of New York, as trustee under the Indenture, a copy of which is
attached hereto as Exhibit K-2.
<PAGE> 32
26
"SECURITY AGREEMENTS": the collective reference to the
HomeSide Security Agreement, the HonoMo Security Agreement and the BMC
Security Agreement.
"SECURITY DOCUMENTS": the collective reference to the Security
Agreements, the Pledge Agreements and all other security documents
hereafter delivered to the Administrative Agent or the Collateral Agent
granting a Lien on any asset or assets of any Person to secure the
obligations and liabilities of the Borrowers hereunder and under any of
the other Loan Documents or to secure any Guarantee.
"SECURITY PERFECTION DATE": the date that the Administrative
Agent gives notice of the occurrence of a Negative Security Event or,
if HomeSide shall wish to cause the Security Perfection Date to occur
earlier, such earlier date.
"servicing advance portion": as defined in subsection 4.3.
-------------------------
"servicing portfolio portion": as defined in subsection 4.3.
---------------------------
"SFAS": Statements of Financial Accounting Standards as
adopted by the Financial Accounting Standards Board.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"sponsor": as defined in Section 9(k).
-------
"STOCKHOLDER AGREEMENT": the Amended and Restated Stockholder
Agreement, dated as of May 31, 1996, among the principal stockholders
of Holdings and entered into pursuant to the BMC Stock Purchase
Agreement.
"SUBSIDIARY": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of HomeSide.
"SUBSIDIARIES GUARANTEE": the Amended and Restated
Subsidiaries Guarantee to be executed and delivered by the Subsidiary
Guarantors, substantially in the form of Exhibit C-2, as the same may
be amended, supplemented or otherwise modified from time to time.
<PAGE> 33
27
"SUBSIDIARY GUARANTORS": the Subsidiaries listed on Schedule
5.14 and all Subsidiaries that are required to become parties to the
Subsidiaries Guarantee from time to time pursuant to subsection
7.11(b).
"SUBSTITUTE BASIS": an alternative basis for determining the
Eurodollar Rate because of the circumstances referred to in subsection
3.7, as determined as provided in subsection 3.7.
"Substitute Basis Notice": as defined in subsection 3.7.
-----------------------
"SWING LINE COMMITMENT": initially, the amount set forth on
Schedule I opposite each initial Swing Line Lender's name, and, in the
event that any additional Swing Line Lender is designated as described
in the definition of "Swing Line Lenders", the amount agreed upon by
HomeSide, the Administrative Agent and such Swing Line Lender.
"SWING LINE LENDERS": initially, Chase, and any other Lender
that the Administrative Agent, HomeSide and such Lender may from time
to time agree to designate as a Swing Line Lender.
"SWING LINE LOANS": the collective reference to the Tranche A
Swing Line Loans and the Tranche B Swing Line Loans.
"Termination Date": February 14, 2000.
----------------
"TRANCHE A BORROWING BASE": either or both of the HomeSide
Tranche A Borrowing Base and the HonoMo Tranche A Borrowing Base, as
the context may require.
"TRANCHE A BORROWING BASE CERTIFICATE": a certificate,
substantially in the form of Attachment 4-A to the Borrower Security
Agreements, duly executed by the Collateral Agent and delivered to the
Administrative Agent pursuant to this Agreement.
"TRANCHE A CAF ADVANCE": each CAF Advance made pursuant to
subsection 2.1(c).
"TRANCHE A COMMITMENT": as to any Lender, the amount set forth
opposite such Lender's name on Schedule I under the heading "Tranche A
Commitments", as such amount may be reduced from time to time in
accordance with the provisions of this Agreement.
"TRANCHE A COMMITMENT AMOUNT": at any time, the sum of the
aggregate Tranche A Commitments in effect at such time.
"TRANCHE A COMMITMENT PERCENTAGE": as to any Lender at any
time, the percentage which such Lender's Tranche A Commitment then
constitutes of the aggregate
<PAGE> 34
28
Tranche A Commitments (or, at any time after the Tranche A Commitments
shall have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Tranche A Loans and Tranche A CAF
Advances then outstanding constitutes of the aggregate principal amount
of the Tranche A Loans and Tranche A CAF Advances then outstanding).
"TRANCHE A LOANS": the collective reference to the Rate-Based
Tranche A Loans and Balance-Based Tranche A Loans.
"Tranche A Swing Line Loans": as defined in subsection 2.9(a).
--------------------------
"TRANCHE A SWING LINE RATE": for any day, a per annum rate
equal to the Daily Federal Funds Rate for such day, PLUS a margin of
.60%.
"Tranche B Advance Loans": as defined in subsection 2.2(c).
-----------------------
"TRANCHE B BORROWING BASE": either or both of the HomeSide
Tranche B Borrowing Base and the HonoMo Tranche B Borrowing Base, as
the context may require.
"TRANCHE B BORROWING BASE CERTIFICATE": a certificate,
substantially in the form of Attachment 4-B to the Borrower Security
Agreements, duly executed by the Collateral Agent and delivered to the
Administrative Agent pursuant to this Agreement.
"TRANCHE B CAF ADVANCE": each CAF Advance made pursuant to
subsection 2.2(d).
"TRANCHE B COMMITMENT": as to any Lender, the obligation of
such Lender to make Tranche B Loans to the Borrowers hereunder in an
aggregate principal amount at any one time outstanding not to exceed
the amount set forth opposite such Lender's name on Schedule I under
the heading "Tranche B Commitments", as such amount may be reduced from
time to time in accordance with the provisions of this Agreement.
"TRANCHE B COMMITMENT AMOUNT": at any time, the sum of the
aggregate Tranche B Commitments in effect at such time.
"TRANCHE B COMMITMENT PERCENTAGE": as to any Lender at any
time, the percentage which such Lender's Tranche B Commitment then
constitutes of the aggregate Tranche B Commitments (or, at any time
after the Tranche B Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's
Tranche B Loans and Tranche B CAF Advances then outstanding constitutes
of the aggregate principal amount of the Tranche B Loans and Tranche B
CAF Advances then outstanding).
<PAGE> 35
29
"TRANCHE B LOANS": the collective reference to the Rate-Based
Tranche B Loans and Balance-Based Tranche B Loans.
"Tranche B Portfolio Loans": as defined in subsection 2.2(c).
-------------------------
"TRANCHE B SWING LINE ADVANCE LOANS": as defined in subsection
2.9(a).
"Tranche B Swing Line Loans": as defined in subsection 2.9(a).
--------------------------
"TRANCHE B SWING LINE PORTFOLIO LOANS": as defined in
subsection 2.9(a).
"TRANCHE B SWING LINE RATE": for any day, a per annum rate
equal to (i) in the case of Tranche B Swing Line Advance Loans, a per
annum rate equal to the Daily Federal Funds Rate for such day, PLUS a
margin of .60%, and (ii) in the case of Tranche B Swing Line Portfolio
Loans, a per annum rate equal to the Daily Federal Funds Rate for such
day, PLUS the sum of (A) .60% PLUS (B) the difference between (x) the
Applicable Margin for Tranche A Loans at such time and (y) the
Applicable Margin for Tranche B Portfolio Loans at such time.
"Transferee": as defined in subsection 11.6(f).
----------
"TYPE": as to any Rate-Based Loan, its nature as an ABR Loan
or a Eurodollar Loan.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
HomeSide and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP, as defined in subsection 1.1;
PROVIDED, that in the event that there shall occur after the Closing Date any
change in the generally accepted accounting principles in the United States of
America and such change affects the method of calculating any of the factors
that go into any component of the financial covenants set forth in subsection
8.1, GAAP (as in effect prior to such change) shall continue to be used in the
determination thereof (and HomeSide shall prepare and deliver a reconciliation
satisfactory to the Administrative Agent in respect thereof) until the
Administrative Agent, the Required Lenders and HomeSide agree upon adjustments
to such covenants as reasonably required so that they are consistent with such
financial covenants made as of the date hereof, notwithstanding such change, and
the Administrative Agent, the Lenders and HomeSide hereby agree to make
reasonable efforts to reach agreement thereon in such event.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular
<PAGE> 36
30
provision of this Agreement, and Section, subsection, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(e) In addition to the terms defined in subsection 1.1, other
terms used herein are defined in Section 4.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND CAF ADVANCE FACILITY
2.1 TRANCHE A LOANS; TRANCHE A CAF ADVANCES. (a) During the
Commitment Period, subject to the terms and conditions hereof, each Balance
Lender severally agrees to make revolving credit loans (the "BALANCE-BASED
TRANCHE A LOANS") to each Borrower in the Principal Amount requested by such
Borrower in accordance with subsection 2.5, PROVIDED, that (i) a Balance Lender
shall not be obligated to make, and shall not make, a Balance-Based Tranche A
Loan to the extent that after giving effect to such Balance-Based Tranche A Loan
and the purchase thereof by the other Balance Lenders and Lenders pursuant to
subsection 2.3, (A) the aggregate outstanding Principal Amount of Tranche A
Loans and Tranche B Loans of any Lender would exceed the aggregate amount of
such Lender's Tranche A Commitment and Tranche B Commitment, (B) the aggregate
outstanding Principal Amount of all Loans would exceed the Tranche A Commitment
Amount plus the Tranche B Commitment Amount, (C) the aggregate outstanding
Principal Amount of all Tranche A Loans, Tranche A CAF Advances and Tranche A
Swing Line Loans made to HomeSide would exceed the HomeSide Tranche A Borrowing
Base, (D) the aggregate outstanding Principal Amount of all Tranche A Loans,
Tranche A CAF Advances and Tranche A Swing Line Loans made to HonoMo would
exceed the HonoMo Tranche A Borrowing Base or (E) the aggregate amount of all
Tranche A Loans, Tranche A CAF Advances and Tranche A Swing Line Loans made to
HonoMo would exceed the HonoMo Tranche A Sublimit, and (ii) a Balance Lender
shall not be obligated to make a Balance- Based Tranche A Loan to the extent of
the amount of the shortfall in funding by any other Lender resulting from such
Lender's failure to comply with its obligation pursuant to subsection 2.3 to
purchase its Tranche A Commitment Percentage of such Balance-Based Tranche A
Loan.
(b) During the Commitment Period, subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
(the "RATE-BASED TRANCHE A LOANS") to each Borrower in the Principal Amount
requested by such Borrower in accordance with subsection 2.7(a); PROVIDED, that
a Lender shall not be obligated to make, and shall not make, a Rate-Based
Tranche A Loan to the extent that after giving effect to such Tranche A Loan,
(i) the aggregate outstanding Principal Amount of Tranche A Loans and Tranche B
Loans of any Lender would exceed the aggregate amount of such Lender's Tranche A
Commitment and Tranche B Commitment, (ii) the aggregate outstanding Principal
Amount of all Loans would exceed the Tranche A Commitment Amount plus the
Tranche B Commitment Amount, (iii) the
<PAGE> 37
31
aggregate outstanding Principal Amount of all Tranche A Loans, Tranche A CAF
Advances and Tranche A Swing Line Loans made to HomeSide would exceed the
HomeSide Tranche A Borrowing Base, (iv) the aggregate outstanding Principal
Amount of all Tranche A Loans, Tranche A CAF Advances and Tranche A Swing Line
Loans made to HonoMo would exceed the HonoMo Tranche A Borrowing Base or (vi)
the aggregate amount of all Tranche A Loans, Tranche A CAF Advances and Tranche
A Swing Line Loans made to HonoMo would exceed the HonoMo Tranche A Sublimit.
(c) During the CAF Advance Availability Period, subject to the
terms and conditions of this Agreement, each Borrower may borrow Tranche A CAF
Advances; PROVIDED, that no Tranche A CAF Advance shall be made to the extent
that after giving effect to such Tranche A CAF Advance (i) the aggregate
outstanding Principal Amount of all Loans would exceed the Tranche A Commitment
Amount plus the Tranche B Commitment Amount, (ii) the aggregate outstanding
Principal Amount of all Tranche A Loans, Tranche A CAF Advances and Tranche A
Swing Line Loans made to HomeSide would exceed the HomeSide Tranche A Borrowing
Base, (iii) the aggregate outstanding Principal Amount of all Tranche A Loans,
Tranche A CAF Advances and Tranche A Swing Line Loans made to HonoMo would
exceed the HonoMo Tranche A Borrowing Base or (iv) the aggregate amount of all
Tranche A Loans, Tranche A CAF Advances and Tranche A Swing Line Loans made to
HonoMo would exceed the HonoMo Tranche A Sublimit. Within the limits and on the
conditions hereinafter set forth with respect to Tranche A CAF Advances, each
Borrower thereof from time to time may borrow, repay and reborrow Tranche A CAF
Advances.
2.2 TRANCHE B LOANS; TRANCHE B CAF ADVANCES. (a) During the
Commitment Period, subject to the terms and conditions hereof, each Balance
Lender severally agrees to make revolving credit loans (the "BALANCE-BASED
TRANCHE B LOANS") to each Borrower in the Principal Amount requested by such
Borrower in accordance with subsection 2.5, PROVIDED, that (i) a Balance Lender
shall not be obligated to make, and shall not make, a Balance-Based Tranche B
Loan to the extent that after giving effect to such Balance-Based Tranche B Loan
and the purchase thereof by the other Balance Lenders and Lenders pursuant to
subsection 2.3, (A) the aggregate outstanding Principal Amount of Tranche B
Loans of any Lender would exceed such Lender's Tranche B Commitment, (B) the
aggregate outstanding principal amount of all Tranche B Loans, Tranche B CAF
Advances and Tranche B Swing Line Loans would exceed the Tranche B Commitment
Amount, (C) the aggregate outstanding Principal Amount of all Loans would exceed
the Tranche A Commitment Amount plus the Tranche B Commitment Amount, (D) the
aggregate outstanding Principal Amount of all Tranche B Advance Loans, Tranche B
CAF Advances and Tranche B Swing Line Advance Loans made to HomeSide would
exceed the Servicing Advance Portion of the HomeSide Tranche B Borrowing Base,
(E) the aggregate outstanding Principal Amount of all Tranche B Advance Loans,
Tranche B CAF Advances and Tranche B Swing Line Advance Loans made to HonoMo
would exceed the Servicing Advance Portion of the HonoMo Tranche B Borrowing
Base, (F) the aggregate outstanding Principal Amount of all Tranche B Portfolio
Loans and Tranche B Swing Line Portfolio Loans made to HomeSide would exceed the
Servicing Portfolio Portion of the HomeSide Tranche B Borrowing Base, (G) the
aggregate outstanding Principal Amount of all Tranche B Portfolio Loans and
Tranche B Swing Line Portfolio Loans made to HonoMo would exceed the Servicing
Portfolio
<PAGE> 38
32
Portion of the HonoMo Tranche B Borrowing Base or (H) the aggregate amount of
all Tranche B Loans, Tranche B CAF Advances and Tranche B Swing Line Loans made
to HonoMo would exceed the HonoMo Tranche B Sublimit, and (ii) a Balance Lender
shall not be obligated to make a Balance-Based Tranche B Loan to the extent of
the amount of the shortfall in funding by any other Lender resulting from such
Lender's failure to comply with its obligation pursuant to subsection 2.3 to
purchase its Tranche B Commitment Percentage of such Balance-Based Tranche B
Loan.
(b) During the Commitment Period, subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
(the "RATE-BASED TRANCHE B LOANS") to each Borrower in the Principal Amount
requested by HomeSide in accordance with subsection 2.7; PROVIDED, that a Lender
shall not be obligated to make, and shall not make, a Rate-Based Tranche B Loan
to the extent that after giving effect to such Rate-Based Tranche B Loan, (i)
the aggregate outstanding Principal Amount of Tranche B Loans of any Lender
would exceed such Lender's Tranche B Commitment, (ii) the aggregate outstanding
principal amount of all Tranche B Loans, Tranche B CAF Advances and Tranche B
Swing Line Loans would exceed the Tranche B Commitment Amount, (iii) the
aggregate outstanding Principal Amount of all Loans would exceed the Tranche A
Commitment Amount plus the Tranche B Commitment Amount, (iv) the aggregate
outstanding Principal Amount of all Tranche B Advance Loans, Tranche B CAF
Advances and Tranche B Swing Line Advance Loans made to HomeSide would exceed
the Servicing Advance Portion of the HomeSide Tranche B Borrowing Base, (v) the
aggregate outstanding Principal Amount of all Tranche B Advance Loans, Tranche B
CAF Advances and Tranche B Swing Line Advance Loans made to HonoMo would exceed
the Servicing Advance Portion of the HonoMo Tranche B Borrowing Base, (vi) the
aggregate outstanding Principal Amount of all Tranche B Portfolio Loans and
Tranche B Swing Line Portfolio Loans made to HomeSide would exceed the Servicing
Portfolio Portion of the HomeSide Tranche B Borrowing Base, (vii) the aggregate
outstanding Principal Amount of all Tranche B Portfolio Loans and Tranche B
Swing Line Portfolio Loans made to HonoMo would exceed the Servicing Portfolio
Portion of the HonoMo Tranche B Borrowing Base, or (viii) the aggregate amount
of all Tranche B Loans, Tranche B CAF Advances and Tranche B Swing Line Loans
made to HonoMo would exceed the HonoMo Tranche B Sublimit.
(c) Tranche B Loans may be made as either (i) Tranche B Loans
based upon the Servicing Advance Portion of the applicable Borrower's Tranche B
Borrowing Base ("TRANCHE B ADVANCE LOANS") or (ii) Tranche B Loans based upon
the Servicing Portfolio Portion of the applicable Borrower's Tranche B Borrowing
Base ("TRANCHE B PORTFOLIO LOANS").
(d) During the CAF Advance Availability Period, subject to the
terms and conditions of this Agreement, each Borrower may borrow Tranche B CAF
Advances; PROVIDED, that no Tranche B CAF Advance shall be made to the extent
that after giving effect to such Tranche B CAF Advance (i) the aggregate
outstanding principal amount of all Tranche B Loans, Tranche B CAF Advances and
Tranche B Swing Line Loans would exceed the Tranche B Commitment Amount, (ii)
the aggregate outstanding Principal Amount of all Loans would exceed the Tranche
A Commitment Amount plus the Tranche B Commitment Amount, (iii) the aggregate
outstanding Principal Amount of all Tranche B Advance Loans, Tranche B CAF
<PAGE> 39
33
Advances and Tranche B Swing Line Advance Loans made to HomeSide would exceed
the Servicing Advance Portion of the HomeSide Tranche B Borrowing Base, (iv) the
aggregate outstanding Principal Amount of all Tranche B Advance Loans, Tranche B
CAF Advances and Tranche B Swing Line Advance Loans made to HonoMo would exceed
the Servicing Advance Portion of the HonoMo Tranche B Borrowing Base, (v) the
aggregate outstanding Principal Amount of all Tranche B Portfolio Loans and
Tranche B Swing Line Portfolio Loans made to HomeSide would exceed the Servicing
Portfolio Portion of the HomeSide Tranche B Borrowing Base, (vi) the aggregate
outstanding Principal Amount of all Tranche B Portfolio Loans and Tranche B
Swing Line Portfolio Loans made to HonoMo would exceed the Servicing Portfolio
Portion of the HonoMo Tranche B Borrowing Base or (vii) the aggregate amount of
all Tranche B Loans, Tranche B CAF Advances and Tranche B Swing Line Loans made
to HonoMo would exceed the HonoMo Tranche B Sublimit.
2.3 MAKING, ASSIGNMENT AND PURCHASE OF BALANCE-BASED LOANS.
(a) Simultaneously with the making of a Balance-Based Loan by a Balance Lender
on a Borrowing Date, such Balance Lender agrees to sell and assign, and does
hereby sell and assign, without recourse, to each other Lender (including each
other Balance Lender, if any, that is a Lender having a Tranche A Commitment, in
the case of Balance-Based Tranche A Loans, or a Tranche B Commitment, in the
case of Balance-Based Tranche B Loans ), and each such other Lender hereby
irrevocably agrees that it will purchase and acquire, such Lender's Tranche A
Commitment Percentage, in the case of Balance-Based Tranche A Loans, or Tranche
B Commitment Percentage, in the case of Balance-Based Tranche B Loans, of such
Balance-Based Loan, whereupon such amount so acquired by such Lender shall
constitute a Balance-Based Tranche A Loan or Balance-Based Tranche B Loan, as
the case may be, owing to such Lender. The purchase price to be paid by each
such Lender for the portion of each Balance-Based Loan assigned to it shall be
such Lender's Tranche A Commitment Percentage, in the case of Balance-Based
Tranche A Loans, or Tranche B Commitment Percentage, in the case of
Balance-Based Tranche B Loans, of the Principal Amount of such Balance-Based
Loan less the Committed Lender Discount applicable thereto.
(b) Each Borrower hereby acknowledges and consents to the
assignment of Balance-Based Loans by each Balance Lender to the other Lenders as
contemplated by this subsection 2.3. Each Borrower and the Administrative Agent
shall deem and treat each Lender as the creditor in respect of the portion of
each Balance-Based Loan assigned to it and as the payee of its Notes, if any, to
the same extent as if such Balance-Based Loan had originally been made by such
Lender directly to such Borrower.
2.4 FUNDING OF BALANCE-BASED LOANS; REPAYMENT. Each
Balance-Based Loan will be funded by the Balance Lenders to the applicable
Borrower net of the applicable Balance Lender Discount; accordingly, each
Balance-Based Loan shall bear no interest prior to the Maturity Date thereof.
Subject to subsection 3.4(f), each Borrower will pay, for the account of the
Lenders, at the Payment Office, the unpaid Principal Amount of each Balance-
Based Loan made to such Borrower on the Maturity Date applicable thereto.
<PAGE> 40
34
2.5 PROCEDURE FOR BALANCE-BASED LOAN BORROWINGS. (a) The
Borrowing Date in respect of each Balance-Based Loan shall be (i) with respect
to the initial Balance-Based Loans, the Closing Date (or such Business Day
thereafter as shall be selected by HomeSide and notice of which is received by
the Administrative Agent at least three Business Days prior thereto), and (ii)
thereafter, the last day of the Interest Period with respect to the then
outstanding Balance-Based Tranche A Loans, in the case of Balance-Based Tranche
A Loans, or the then outstanding Balance-Based Tranche B Loans, in the case of
Balance-Based Tranche B Loans. To request that Balance-Based Loans be made on
any Borrowing Date, HomeSide, for itself or on behalf of HonoMo, shall give
irrevocable notice of such borrowing, which notice must be received by the
Administrative Agent prior to 12:00 noon, New York City time, three Business
Days prior to such Borrowing Date. Each such notice of borrowing shall be given
by delivery in writing or by fax of a Borrowing Notice in the form set forth as
Exhibit F-2, including the information to be provided by the Collateral Agent as
set forth therein and including the respective Principal Amounts of
Balance-Based Loans to be made by each of the Balance Lenders on such Borrowing
Date and whether such Balance- Based Loans are requested to be made as Tranche A
Loans, Tranche B Advance Loans, Tranche B Portfolio Loans or a combination
thereof. Upon the receipt of any such Borrowing Notice, the Administrative Agent
shall promptly notify each Lender thereof. Each borrowing of Balance-Based
Tranche A Loans, or, in the event that HomeSide and HonoMo each make a borrowing
of Balance-Based Tranche A Loans on the same date, the combined amount of both
such borrowings, shall be in an amount equal to $25,000,000 or a whole multiple
of $5,000,000 in excess thereof (or if the Aggregate Available Tranche A
Commitments are less than $25,000,000 such lesser amount). Each borrowing of
Balance-Based Tranche B Loans, or, in the event that HomeSide and HonoMo each
make a borrowing of Balance-Based Tranche B Loans on the same date, the combined
amount of both such borrowings, shall be in an amount equal to $25,000,000 or a
whole multiple of $5,000,000 in excess thereof (or if the Aggregate Available
Tranche B Commitments are less than $25,000,000, such lesser amount). Subject to
subsection 3.4(f), and upon, and to the extent of, receipt by each Balance
Lender from the other Lenders of the amount required to be made available by
such Lenders pursuant to subsection 2.3(a), the Balance Lenders will make the
Principal Amount of Balance-Based Loans so made available by such Lenders, less
the Balance Lender Discount applicable thereto, available to the Administrative
Agent, for the account of such Borrower, at the Payment Office at 1:00 p.m., New
York City time, on the Borrowing Date requested by HomeSide in funds immediately
available to the Administrative Agent; and such proceeds will then be made
available to such Borrower by the Administrative Agent at the Payment Office by
crediting the applicable Funding Account, as directed by HomeSide, with the
amount made available to the Administrative Agent by the Balance Lenders in like
funds as received by the Administrative Agent.
(b) Subject to subsection 3.4(f), at or before 1:00 P.M., New
York City time, on each Borrowing Date in respect of Balance-Based Loans, each
Lender will make available to the Administrative Agent, for the respective
accounts of the Balance Lenders, at the Payment Office in immediately available
funds, an amount equal to the Principal Amount of the Balance-Based Loans being
purchased by such Lender from the Balance Lenders on such Borrowing Date, less
the applicable Committed Lender Discount.
<PAGE> 41
35
2.6 TYPES OF RATE-BASED LOANS. The Rate-Based Loans may from
time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination
thereof, as determined by the applicable Borrower and notified to the
Administrative Agent in accordance with subsections 2.7 and 2.8; PROVIDED, that
no Rate-Based Loan shall be made as a Eurodollar Loan after the day that is one
month prior to the Termination Date.
2.7 PROCEDURE FOR RATE-BASED BORROWINGS; PROCEDURE FOR CAF
ADVANCE BORROWINGS. (a) Each Borrower may borrow Rate-Based Loans during the
Commitment Period on any Business Day, PROVIDED, that HomeSide, for itself or on
behalf of HonoMo, shall give irrevocable notice thereof (which notice must be
received by the Administrative Agent prior to 12:00 noon, New York City time,
(i) three Business Days prior to the requested Borrowing Date, if all or any
part of the requested Rate-Based Loans are to be initially Eurodollar Loans, or
(ii) on the day of such requested Borrowing Date, otherwise). Each such notice
of borrowing shall be given in writing or by fax in the form of the Borrowing
Notice set forth as Exhibit F-1, including the information to be provided by the
Collateral Agent as set forth therein and including the requested Type, amount
and Interest Period, if any, thereof and whether such Rate-Based Loans are
requested to be made as Tranche A Loans, Tranche B Advance Loans, Tranche B
Portfolio Loans or a combination thereof. Each borrowing of Rate-Based Loans
under the Tranche A Commitment, or, in the event that HomeSide and HonoMo each
make a borrowing of Rate-Based Tranche A Loans on the same date with the same
Interest Periods, the combined amount of both such borrowings, shall be in an
amount equal to (A) in the case of ABR Loans, $15,000,000 or a whole multiple of
$5,000,000 in excess thereof (or, if the then undrawn amount of the Tranche A
Commitments is less than $15,000,000, such lesser amount) and (B) in the case of
Eurodollar Loans, $25,000,000 or a whole multiple of $5,000,000 in excess
thereof. Each borrowing of Rate-Based Loans under the Tranche B Commitment, or,
in the event that HomeSide and HonoMo each make a borrowing of Rate-Based
Tranche B Loans on the same date with the same Interest Period, the combined
amount of both such borrowings, shall be in an amount equal to (A) in the case
of ABR Loans, $15,000,000 or a whole multiple of $5,000,000 in excess thereof
(or, if the then undrawn amount of the Tranche B Commitments is less than
$15,000,000, such lesser amount) and (B) in the case of Eurodollar Loans,
$25,000,000 or a whole multiple of $5,000,000 in excess thereof. Upon receipt of
any such notice from HomeSide, the Administrative Agent shall promptly notify
each Lender thereof. Subject to subsection 3.4(f), each Lender will make the
amount of its pro rata share of each such borrowing available to the
Administrative Agent for the account of the applicable Borrower at the Payment
Office prior to 1:00 P.M., New York City time, on the Borrowing Date requested
by HomeSide in funds immediately available to the Administrative Agent, and such
proceeds will then be made available to such Borrower by the Administrative
Agent at the Payment Office by crediting the applicable Funding Account as
directed by HomeSide, with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
(b) If HomeSide wishes to request the Lenders to submit bids
to make CAF Advances to HomeSide or HonoMo on any Business Day, it shall deliver
a CAF Advance Request to the Administrative Agent, not later than 12:00 Noon,
New York City time, four Business Days prior to the proposed Borrowing Date (in
the case of a LIBO Rate CAF Advance
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36
Request), and not later than 10:00 A.M., New York City time, one Business Day
prior to the proposed Borrowing Date (in the case of a Fixed Rate CAF Advance
Request). Each CAF Advance Request in respect of any Borrowing Date may solicit
bids for CAF Advances on such Borrowing Date in an aggregate principal amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof and having
not more than three alternative CAF Advance Maturity Dates. The CAF Advance
Maturity Date for each CAF Advance shall be the date set forth therefor in the
relevant CAF Advance Request, which date shall be (i) not less than 7 days nor
more than 360 days after the Borrowing Date therefor, in the case of a Fixed
Rate CAF Advance, (ii) one, two, three, six or twelve months after the Borrowing
Date therefor, in the case of a LIBO Rate CAF Advance and (iii) not later than
the Termination Date, in the case of any CAF Advance. The Administrative Agent
shall notify each Lender promptly by facsimile transmission of the contents of
each CAF Advance Request received by the Administrative Agent.
(c) In the case of a LIBO Rate CAF Advance Request, upon
receipt of notice from the Administrative Agent of the contents of such CAF
Advance Request, each Lender may elect, in its sole discretion, to offer
irrevocably to make one or more CAF Advances at the applicable LIBO Rate plus
(or minus) a margin determined by such Lender in its sole discretion for each
such CAF Advance. Any such irrevocable offer shall be made by delivering a CAF
Advance Offer to the Administrative Agent, before 10:30 A.M., New York City
time, on the day that is three Business Days before the proposed Borrowing Date,
setting forth:
(i) the maximum amount of Tranche A CAF Advances or
Tranche B CAF Advances, as the case may be, for each CAF Advance
Maturity Date and the aggregate maximum amount of CAF Advances for all
CAF Advance Maturity Dates which such Lender would be willing to make
(which amounts may, subject to subsection 2.1(c) or 2.2(d), as the case
may be, exceed such Lender's Commitment); and
(ii) the margin above or below the applicable LIBO Rate
at which such Lender is willing to make each such CAF Advance.
The Administrative Agent shall advise HomeSide before 11:00 A.M., New York City
time, on the date which is three Business Days before the proposed Borrowing
Date of the contents of each such CAF Advance Offer received by it. If the
Administrative Agent, in its capacity as a Lender, shall elect, in its sole
discretion, to make any such CAF Advance Offer, it shall advise HomeSide of the
contents of its CAF Advance Offer before 10:15 A.M., New York City time, on the
date which is three Business Days before the proposed Borrowing Date.
(d) In the case of a Fixed Rate CAF Advance Request, upon
receipt of notice from the Administrative Agent of the contents of such CAF
Advance Request, each Lender may elect, in its sole discretion, to offer
irrevocably to make one or more CAF Advances at a rate of interest determined by
such Lender in its sole discretion for each such CAF Advance. Any such
irrevocable offer shall be made by delivering a CAF Advance Offer to the
Administrative Agent before 9:30 A.M., New York City time, on the proposed
Borrowing Date, setting forth:
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37
(i) the maximum amount of Tranche A CAF Advances or
Tranche B CAF Advances, as the case may be, for each CAF Advance
Maturity Date, and the aggregate maximum amount of CAF Advances for all
CAF Advance Maturity Dates, which such Lender would be willing to make
(which amounts may, subject to subsection 2.1(c) or 2.2(d), as the case
may be, exceed such Lender's Commitment); and
(ii) the rate of interest at which such Lender is willing
to make each such CAF Advance.
The Administrative Agent shall advise HomeSide before 10:00 A.M., New York City
time, on the proposed Borrowing Date of the contents of each such CAF Advance
Offer received by it. If the Administrative Agent, in its capacity as a Lender,
shall elect, in its sole discretion, to make any such CAF Advance Offer, it
shall advise HomeSide of the contents of its CAF Advance Offer before 9:15 A.M.
New York City time, on the proposed Borrowing Date.
(e) Before 11:30 A.M., New York City time, three Business Days
before the proposed Borrowing Date (in the case of CAF Advances requested by a
LIBO Rate CAF Advance Request) and before 10:30 A.M., New York City time, on the
proposed Borrowing Date (in the case of CAF Advances requested by a Fixed Rate
CAF Advance Request), HomeSide, in its absolute discretion, shall:
(i) cancel such CAF Advance Request by giving the
Administrative Agent telephone notice to that effect, or
(ii) by giving telephone notice to the Administrative
Agent (immediately confirmed by delivery to the Administrative Agent of
a CAF Advance Confirmation by facsimile transmission) (A) subject to
the provisions of subsection 2.7(f), accept one or more of the CAF
Advance Offers made by any Lender or Lenders pursuant to subsection
2.7(c) or subsection 2.7(d), as the case may be, and (B) reject any
remaining CAF Advance Offers made by Lenders pursuant to subsection
2.7(c) or subsection 2.7(d), as the case may be.
(f) HomeSide's acceptance of CAF Advances in response to any
CAF Advance Offers shall be subject to the following limitations:
(i) the amount of Tranche A CAF Advances or Tranche B
CAF Advances, as the case may be, accepted for each CAF Advance
Maturity Date specified by any Lender in its CAF Advance Offer shall
not exceed the maximum amount of Tranche A CAF Advances or Tranche B
CAF Advances, as the case may be, for such CAF Advance Maturity Date
specified in such CAF Advance Offer;
(ii) the aggregate amount of Tranche A CAF Advances or
Tranche B CAF Advances, as the case may be, accepted for all CAF
Advance Maturity Dates specified by any Lender in its CAF Advance Offer
shall not exceed the aggregate maximum amount
<PAGE> 44
38
of Tranche A CAF Advances or Tranche B CAF Advances, as the case may
be, specified in such CAF Advance Offer for all such CAF Advance
Maturity Dates;
(iii) HomeSide may not accept CAF Advance Offers for
Tranche A CAF Advances or Tranche B CAF Advances, as the case may be,
for any CAF Advance Maturity Date in an aggregate principal amount in
excess of the maximum principal amount requested in the related CAF
Advance Request; and
(iv) if HomeSide accepts any of such CAF Advance Offers,
it must accept CAF Advance Offers based solely upon pricing for each
relevant CAF Advance Maturity Date and upon no other criteria
whatsoever, and if two or more Lenders submit CAF Advance Offers for
any CAF Advance Maturity Date at identical pricing and HomeSide accepts
any of such CAF Advance Offers but does not wish to (or, by reason of
the limitations set forth in subsection 2.1(c) or 2.2(d) cannot) borrow
the total amount offered by such Lenders with such identical pricing,
HomeSide shall accept CAF Advance Offers from all of such Lenders in
amounts allocated among them PRO RATA according to the amounts offered
by such Lenders (with appropriate rounding, in the sole discretion of
HomeSide, to assure that each accepted CAF Advance is an integral
multiple of $1,000,000); PROVIDED that if the number of Lenders that
submit CAF Advance Offers for any CAF Advance Maturity Date at
identical pricing is such that, after HomeSide accepts such CAF Advance
Offers PRO RATA in accordance with the foregoing provisions of this
paragraph, the CAF Advance to be made by any such Lender would be less
than $5,000,000 principal amount, the number of such Lenders shall be
reduced by the Administrative Agent by lot until the CAF Advances to be
made by each such remaining Lender would be in a principal amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof.
(g) If HomeSide notifies the Administrative Agent that a CAF
Advance Request is cancelled pursuant to subsection 2.7(e)(i), the
Administrative Agent shall give prompt telephone notice thereof to the Lenders.
(h) If HomeSide accepts pursuant to subsection 2.7(e)(ii) one
or more of the CAF Advance Offers made by any Lender or Lenders, the
Administrative Agent promptly shall notify each Lender which has made such a CAF
Advance Offer of (i) the aggregate amount of such CAF Advances to be made on
such Borrowing Date for each CAF Advance Maturity Date and (ii) the acceptance
or rejection of any CAF Advance Offers to make such CAF Advances made by such
Lender. Before 12:00 Noon, New York City time, on the Borrowing Date specified
in the applicable CAF Advance Request, each Lender whose CAF Advance Offer has
been accepted shall make available to the Administrative Agent at the Payment
Office the amount of CAF Advances to be made by such Lender, in immediately
available funds. The Administrative Agent will make such funds available to
HomeSide as soon as practicable on such date at the Payment Office by crediting
the applicable Funding Account, as directed by HomeSide, with the amount made
available to the Administrative Agent by the Lenders in like funds as received
by the Administrative Agent. As soon as practicable after each Borrowing Date,
the Administrative
<PAGE> 45
39
Agent shall notify each Lender of the aggregate amount of CAF Advances advanced
on such Borrowing Date and the respective CAF Advance Maturity Dates thereof.
(i) A CAF Advance Request may request CAF Advance Offers for
CAF Advances to be made on not more than one Borrowing Date and to mature on not
more than three CAF Advance Maturity Dates. No CAF Advance Request may be
submitted earlier than five Business Days after submission of any other CAF
Advance Request.
2.8 CONVERSION AND CONTINUATION OPTIONS FOR RATE-BASED LOANS.
(a) HomeSide may elect from time to time to convert Eurodollar Loans made to it
or to HonoMo to ABR Loans by giving the Administrative Agent at least two
Business Days' prior irrevocable notice of such election, PROVIDED, that any
such conversion may only be made on the last day of an Interest Period with
respect to the Eurodollar Loans being converted. HomeSide may elect from time to
time to convert ABR Loans made to it or to HonoMo to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election. Each such notice shall be in writing or by fax in the form of
Exhibit F-2 and shall include the applicable information required as set forth
therein. Any such notice of conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice the Administrative Agent shall promptly notify each Lender
thereof. All or any part of outstanding Eurodollar Loans or ABR Loans may be
converted as provided herein, PROVIDED, that (i) no ABR Loan may be converted
into a Eurodollar Loan when any Event of Default has occurred and is continuing
and the Administrative Agent or the Required Lenders have determined that such a
conversion is not appropriate, (ii) any such conversion may only be made if,
after giving effect thereto, subsection 2.10 shall not have been contravened and
(iii) no ABR Loan may be converted into a Eurodollar Loan after the date which
is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by
HomeSide's giving three Business Days' notice to the Administrative Agent, in
accordance with the applicable provisions of the term "Interest Period" set
forth in subsection 1.1, of the length of the next Interest Period to be
applicable to such Eurodollar Loans, PROVIDED, that no Eurodollar Loan may be
continued as such (i) when any Event of Default has occurred and is continuing
and the Administrative Agent or the Required Lenders have determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto,
subsection 2.10 would be contravened or (iii) after the date that is one month
prior to the Termination Date; and PROVIDED, FURTHER, that if HomeSide shall
fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Eurodollar
Loans shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period. Each such notice shall be in writing or by fax in the
form of Exhibit F-2 and shall include the applicable information required as set
forth therein. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof.
2.9 SWING LINE COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Swing Line Lender severally agrees to make short-term
funding loans, which may be
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40
designated in the Borrowing Notice in the form of Exhibit F-1 in respect thereof
as (i) based on the Tranche A Borrowing Base of the applicable Borrower
("TRANCHE A SWING LINE LOANS"), (ii) based on the Servicing Advance Portion of
the applicable Borrower's Tranche B Borrowing Base ("TRANCHE B SWING LINE
ADVANCE LOANS"), and/or (iii) based on the Servicing Portfolio Portion of the
applicable Borrower's Tranche B Borrowing Base ("TRANCHE B SWING LINE PORTFOLIO
LOANS"; together with the Tranche B Swing Line Advance Loans, the "TRANCHE B
SWING LINE LOANS"), to each Borrower from time to time during the Commitment
Period in an aggregate principal amount at any one time outstanding not to
exceed such Swing Line Lender's Swing Line Commitment; PROVIDED, that no Swing
Line Loans may be made if, after giving effect thereto, (A) the aggregate
outstanding Principal Amount of all Loans would exceed the Tranche A Commitment
Amount plus the Tranche B Commitment Amount, (B) the aggregate outstanding
Principal Amount of Swing Line Loans of any Swing Line Lender would exceed such
Swing Line Lender's Swing Line Commitment, (C) the aggregate outstanding
principal amount of all Tranche B Loans, Tranche B CAF Advances and Tranche B
Swing Line Loans would exceed the Tranche B Commitment Amount, (D) the aggregate
outstanding Principal Amount of all Tranche A Loans, Tranche A CAF Advances and
Tranche A Swing Line Loans made to HomeSide would exceed the HomeSide Tranche A
Borrowing Base, (E) the aggregate outstanding Principal Amount of all Tranche A
Loans, Tranche A CAF Advances and Tranche A Swing Line Loans made to HonoMo
would exceed the HonoMo Tranche A Borrowing Base, (F) the aggregate outstanding
Principal Amount of all Tranche B Advance Loans, Tranche B CAF Advances and
Tranche B Swing Line Advance Loans made to HomeSide would exceed the Servicing
Advance Portion of the HomeSide Tranche B Borrowing Base, (G) the aggregate
outstanding Principal Amount of all Tranche B Advance Loans, Tranche B CAF
Advances and Tranche B Swing Line Advance Loans made to HonoMo would exceed the
Servicing Advance Portion of the HonoMo Tranche B Borrowing Base, (H) the
aggregate outstanding Principal Amount of all Tranche B Portfolio Loans and
Tranche B Swing Line Portfolio Loans made to HomeSide would exceed the Servicing
Portfolio Portion of the HomeSide Tranche B Borrowing Base, (I) the aggregate
outstanding Principal Amount of all Tranche B Portfolio Loans and Tranche B
Swing Line Portfolio Loans made to HonoMo would exceed the Servicing Portfolio
Portion of the HonoMo Tranche B Borrowing Base, (J) the aggregate outstanding
Principal Amount of all Tranche A Loans, Tranche A CAF Advances and Tranche A
Swing Line Loans made to HonoMo would exceed the HonoMo Tranche A Sublimit or
(K) the aggregate outstanding Principal Amount of all Tranche B Loans, Tranche B
CAF Advances and Tranche B Swing Line Loans made to HonoMo would exceed the
HonoMo Tranche B Sublimit.
(b) Each Borrower may borrow under the Swing Line Commitments
during the Commitment Period on any Business Day, PROVIDED that HomeSide, for
itself or on behalf of HonoMo, shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 2:00
P.M., New York City time, on the requested Borrowing Date, specifying the amount
to be borrowed. Each borrowing under the Swing Line Commitments, or in the event
HomeSide and HonoMo make a borrowing of Swing Line Loans on the same day, the
combined amount of such Swing Line Loans, shall be in an amount equal to
$2,500,000 or a whole multiple of $1,000,000 in excess thereof. Each such notice
shall be in writing or by fax in the form of Exhibit F-1 and shall include the
information required as set forth therein, including the information to be
provided by the Collateral Agent as set forth
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41
therein. During the Commitment Period each Borrower may use the Swing Line
Commitments by borrowing, prepaying the Swing Line Loans in whole or in part,
and reborrowing, all in accordance with the terms and conditions hereof. Upon
receipt of any such notice from HomeSide, the Administrative Agent shall
promptly notify each Swing Line Lender thereof. Each Swing Line Lender will make
the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the applicable Borrower at the Payment
Office prior to 3:00 p.m., New York City time, on the Borrowing Date requested
by HomeSide in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the applicable Borrower by the
Administrative Agent at the Payment Office by crediting the applicable Funding
Account with the aggregate of the amounts made available to the Administrative
Agent by the Swing Line Lenders and in like funds as received by the
Administrative Agent.
(c) The Administrative Agent may at any time in its sole and
absolute discretion, and, with respect to each Swing Line Loan which has not
been repaid by the applicable Borrower in immediately available funds prior to
10:30 A.M., New York City time, on the Thursday (or if such day is not a
Business Day, the Business Day first preceding such day) first occurring after
the Borrowing Date with respect to such Swing Line Loan shall, on behalf of such
Borrower (which hereby irrevocably directs the Swing Line Lender to act on its
behalf) request prior to 12:00 Noon, New York City time, each Lender on such
Thursday (or such next preceding Business Day) after the Borrowing Date with
respect to such Swing Line Loan (i) to make a Tranche A Loan in an amount equal
to such Lender's Tranche A Commitment Percentage of the amount of each such
Swing Line Loan that is a Tranche A Swing Line Loan and (ii) to make a Tranche B
Loan in an amount equal to such Lender's Tranche B Commitment Percentage of the
amount of each such Swing Line Loan that is a Tranche B Swing Line Loan
(collectively, the "MATURING SWING LINE LOANS"). Unless any of the events
described in paragraph (f) of Section 9 shall have occurred (in which event the
procedures of paragraph (d) of this subsection 2.9 shall apply) each Lender
shall make the proceeds of its Tranche A Loan or Tranche B Loan, as the case may
be, available to the Administrative Agent for the account of the Swing Line
Lenders at the Payment Office prior to 2:00 P.M., New York City time, in funds
immediately available on the date such notice is given. The proceeds of such
Tranche A Loans or Tranche B Loans, as the case may be, shall be immediately
applied to repay the Maturing Swing Line Loan. Each Tranche A Loan or Tranche B
Loan made pursuant to this subsection 2.9(c) shall be an ABR Loan. Such Tranche
B Loans shall be Tranche B Advance Loans or Tranche B Portfolio Loans, as the
case may be, as determined by such type of the applicable Swing Line Loans
refunded thereby.
(d) If prior to the making of a Tranche A Loan or a Tranche B
Loan pursuant to paragraph (c) of this subsection 2.9 one of the events
described in paragraph (f) of Section 9 shall have occurred, each Lender will,
on the date such Tranche A Loan or Tranche B Loan was to have been made,
purchase an undivided participating interest in the Maturing Swing Line Loan
that was to have been refunded with the proceeds of such Tranche A Loan or such
Tranche B Loan, as the case may be, in an amount equal to its Tranche A
Commitment Percentage of such Maturing Swing Line Loan, in the case of such
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Tranche A Loan, or in an amount equal to its Tranche B Commitment Percentage of
such Maturing Swing Line Loan, in the case of such Tranche B Loan. Each Lender
will immediately transfer to the Administrative Agent, in immediately available
funds, the amount of its participation and upon receipt thereof (i) the
Administrative Agent will make such funds available to each Swing Line Lender
based pro rata on their respective portion of such Swing Line Loan and (ii) each
such Swing Line Lender will deliver to the Administrative Agent, and the
Administrative Agent will in turn promptly deliver to each such Lender, a Swing
Line Loan participation certificate dated the date of receipt of such funds and
in such amount.
(e) Whenever, at any time after the Administrative Agent has
received from any Lender such Lender's participating interest in a Maturing
Swing Line Loan, the Administrative Agent receives any payment on account
thereof, the Administrative Agent will distribute to such Lender its
participating interest in such amount (appropriately adjusted in the case of
interest payments, to reflect the period of time during which such Lender's
participating interest was outstanding and funded); PROVIDED, HOWEVER, that in
the event that such payment received by the Administrative Agent is required to
be returned, such Lender will return to the Administrative Agent any portion
thereof previously distributed by the Administrative Agent to it.
(f) Each Lender's obligation to purchase participating
interests pursuant to this subsection 2.9 shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(i) any set-off, counterclaim, recoupment, defense or other right which such
Lender or either Borrower may have against the Administrative Agent or any Swing
Line Lender, either Borrower or anyone else for any reason whatsoever; (ii) the
occurrence or continuance of an Event of Default; (iii) any adverse change in
the financial condition of either Borrower; (iv) any breach of this Agreement by
any Loan Party or any other Lender; or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
2.10 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF EURODOLLAR
TRANCHES. All borrowings, conversions and continuations of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, there shall be no more than 20 Eurodollar Tranches outstanding at any
time.
2.11 INTEREST RATES AND PAYMENT DATES FOR RATE-BASED LOANS.
(a) Each Eurodollar Loan shall bear interest for each day during each Interest
Period with respect thereto at a rate per annum equal to the Eurodollar Rate
determined for such Interest Period plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to the ABR plus, with respect to any Tranche B Portfolio Loan that is an
ABR Loan outstanding when Rating V is in effect, a margin of .50%.
(c) Each Tranche A Swing Line Loan shall bear interest at a
rate per annum equal to the Tranche A Swing Line Rate, and each Tranche B Swing
Line Loan shall bear interest at a rate per annum equal to the applicable
Tranche B Swing Line Rate.
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43
(d) Each CAF Advance shall bear interest at the rate per annum
specified in the CAF Advance Offer accepted by HomeSide in connection with such
CAF Advance.
(e) If all or a portion of the Principal Amount of any Loan or
any interest payable thereon shall not be paid when due (whether at the stated
Maturity Date, by acceleration or otherwise), the outstanding Principal Amount
of the Loans shall bear interest at a rate per annum equal to the Post-Default
Rate, in each case from the date of such non-payment until such amount is paid
in full (as well after as before judgment). If any amount payable hereunder
other than the amounts set forth above shall not be paid when due, such amount
shall bear interest at a rate per annum equal to the Post-Default Rate until
paid in full.
(f) Interest shall be payable in arrears on each Interest
Payment Date, PROVIDED, that interest accruing pursuant to paragraph (e) of this
subsection shall be payable on demand and PROVIDED, FURTHER, that interest
accrued on ABR Loans for each day during each calendar month shall be payable on
the Interest Payment Date first following such calendar month.
SECTION 3. ADDITIONAL PROVISIONS APPLICABLE TO THE LOANS
3.1 REPAYMENT OF LOANS; INTEREST; EVIDENCE OF DEBT. (a) Each
Borrower hereby unconditionally promises to pay at the Payment Office for the
account of each Lender the then unpaid Principal Amount of each Loan of such
Lender made to such Borrower on the Maturity Date with respect thereto, or on
such earlier date on which the Loans become due and payable pursuant to Section
9. Each Borrower hereby further agrees to pay at the Payment Office interest on
the unpaid principal amount of the Loans made to it and from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 2.11.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of each Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the Principal Amount of each Loan made hereunder and
each Interest Period applicable thereto and, in the case of Rate-Based Loans,
the Type thereof, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrowers to each Lender hereunder and
(iii) both the amount of any sum received by the Administrative Agent hereunder
from the Borrowers and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 3.1(b) shall, to the extent permitted
by applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Borrowers therein recorded; PROVIDED, HOWEVER, that the
failure of any Lender or the Administrative Agent to maintain the
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Register or any such account, or any error therein, shall not in any manner
affect the obligation of either Borrower to repay (with applicable interest) the
Loans in accordance with the terms of this Agreement.
(e) Each Borrower agrees that, upon the request to the
Administrative Agent by any Lender, such Borrower will execute and deliver to
such Lender a promissory note of such Borrower evidencing the Loans of such
Lender, substantially in the form of Exhibit A-1, in the case of Balance-Based
Loans, Exhibit A-2, in the case of Rate-Based Loans, Exhibit A-3, in the case of
Swing Line Loans and A-4, in the case of CAF Advances, with appropriate
insertions as to date and principal amount (each, a "NOTE").
3.2 FEES. (a) HomeSide shall pay to the Administrative Agent,
for the account of each Lender, quarterly in arrears, a commitment fee equal to
the product of (i) the Commitment Fee Rate multiplied by (ii) such Lender's
average daily Available Commitment, in each case for the quarterly period ended
on the last day of such quarterly payment date, payable on the last day of each
March, June, September and December and on the Termination Date or such earlier
date on which the Commitments shall terminate as provided herein. Payment of
commitment fees payable pursuant to this subsection 3.2(a) shall commence on
March 31, 1997.
(b) HomeSide shall pay to the Administrative Agent, for the
account of Chase, the fees in the amounts and on the dates previously set forth
in the Letter Agreement.
(c) HomeSide shall pay to the Collateral Agent the fees in the
amounts and on the dates agreed between HomeSide and the Collateral Agent from
time to time.
(d) HomeSide shall pay to the Administrative Agent fees for
its services hereunder in the amounts and on the dates agreed between HomeSide
and the Administrative Agent from time to time.
3.3 OPTIONAL REDUCTIONS OF COMMITMENTS; MANDATORY REDUCTIONS
OF COMMITMENTS. (a) HomeSide shall have the right to terminate or reduce the
unused portion of the Tranche A Commitments, the Tranche B Commitments or the
Swing Line Commitments at any time or from time to time upon not less than three
Business Days' prior notice to the Administrative Agent (which shall notify the
Lenders thereof as soon as practicable), which notice shall specify the
effective date thereof and the amount of any such reduction (which shall not be
less than $10,000,000 or a whole multiple of $5,000,000 in excess thereof) and
shall be irrevocable; PROVIDED, that no such termination or reduction shall be
permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, (i) the aggregate Principal Amount of the
outstanding Tranche A Loans, Tranche A CAF Advances, Tranche B Loans and Tranche
B CAF Advances, plus the aggregate amount of the outstanding Swing Line Loans
and the unused portion of the Swing Line Commitments, would exceed the Tranche A
Commitment Amount plus the Tranche B Commitment Amount or (ii) the aggregate
Principal Amount of the outstanding Tranche B Loans, Tranche B CAF Advances and
Tranche B Swing Line Loans would exceed the Tranche B Commitments; and PROVIDED,
FURTHER, that after giving effect to any such reduction in the Tranche A
Commitments or the Tranche B
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Commitments, the proportion of the aggregate Tranche A Commitments in relation
to the aggregate Commitments shall not be less than the proportion of the
aggregate Tranche A Commitments on the Closing Date in relation to the aggregate
Commitments on the Closing Date.
(b) The Commitments once terminated or reduced may not be
reinstated. Termination of the Commitments shall terminate the obligation of (i)
the Balance Lenders to make Balance-Based Loans, (ii) the Lenders to purchase
Balanced-Based Loans, (iii) the Lenders to make Rate-Based Loans and (iv) the
Swing Line Lenders to make Swing Line Loans.
(c) Any prepayment of Tranche B Loans pursuant to subsection
3.4(c) shall be accompanied by a simultaneous and automatic reduction of the
Tranche B Commitments in an equal amount.
3.4 OPTIONAL AND MANDATORY PREPAYMENTS; NET REPAYMENTS. (a)
Subject to subsection 3.11, each Borrower shall have the right to prepay a
Committed Loan prior to the Maturity Date applicable thereto, without premium or
penalty, upon at least three Business Days' irrevocable notice to the
Administrative Agent with respect to Eurodollar Loans or Balance-Based Loans,
and, in the case of ABR Loans, notice prior to 12:00 noon (New York City time)
on the Business Day of such prepayment, specifying the date and amount of
prepayment and whether the prepayment is of Tranche A Loans, Tranche B Advance
Loans, Tranche B Portfolio Loans, Balance-Based Loans, Rate-Based Loans or, if
of a combination thereof, the amount allocable to each, and, with respect to
Rate-Based Loans, whether the prepayment is of Eurodollar Loans, ABR Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each; PROVIDED, that any optional prepayment shall be in an amount not less than
$10,000,000 or a whole multiple of $5,000,000 in excess thereof (or, if the
outstanding principal amount of any Loan being so prepaid is less than
$10,000,000, such lesser amount). Swing Line Loans may be prepaid without
notice. A CAF Advance may be prepaid only with the consent of the Lender to
which such CAF Advance is owed.
(b) Each Borrower shall immediately prepay (i) Tranche A Loans
and/or Tranche A Swing Line Loans made to it to the extent that the aggregate
outstanding Principal Amount of the Tranche A Loans, Tranche A CAF Advances and
Tranche A Swing Line Loans made to it exceeds the amount of the HomeSide Tranche
A Borrowing Base, in the case of such Loans made to HomeSide, or the amount of
the HonoMo Tranche A Borrowing Base, in the case of such Loans made to HonoMo,
(ii) Tranche B Advance Loans and/or Tranche B Swing Line Advance Loans made to
it to the extent that the aggregate outstanding Principal Amount of the Tranche
B Advance Loans, Tranche B CAF Advances and the Tranche B Swing Line Advance
Loans made to it exceeds the amount of the Servicing Advance Portion of the
HomeSide Tranche B Borrowing Base, in the case of such Loans made to HomeSide,
or the amount of the Servicing Advance Portion of the HonoMo Tranche B Borrowing
Base, in the case of such Loans made to HonoMo, and (iii) Tranche B Portfolio
Loans and/or Tranche B Swing Line Portfolio Loans made to it, to the extent that
the aggregate outstanding Principal Amount of the Tranche B Portfolio Loans and
the Tranche B Swing Line Portfolio Loans made to it exceeds the amount of the
Servicing Portfolio Portion of the HomeSide Tranche B Borrowing Base, in the
case of such
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46
Loans made to HomeSide, or the amount of the Servicing Portfolio Portion of the
HonoMo Tranche B Borrowing Base, in the case of such Loans made to HonoMo, in
each case as set forth in any Borrowing Base Certificate delivered by such
Borrower hereunder, PROVIDED that in the case of clause (iii) above, if such
Borrower delivers to the Administrative Agent on the date of such required
prepayment of Tranche B Portfolio Loans a certificate setting forth, in
reasonable detail, the value and description of Hedge Contracts from which such
Borrower is then undertaking to realize cash proceeds, and the Administrative
Agent determines that the amount of such value to be so realized is equal to or
greater than the amount of such required prepayment, such required prepayment
shall be made as soon as practicable thereafter and in any event no later than
five Business Days after the date that such prepayment would be required but for
this proviso. Such prepayments shall be applied to the Loans in respect of which
such excess over the Borrowing Base component applicable thereto exists as
described in the preceding sentence (and ratably thereto, if applicable), FIRST,
to any outstanding ABR Loans, SECOND, to any outstanding Swing Line Loans,
THIRD, to any outstanding Eurodollar Loans and FOURTH, to any outstanding
Balance-Based Loans.
(c) If, subsequent to the Closing Date, HomeSide or Holdings
shall issue or incur any Indebtedness (other than Indebtedness permitted by
subsection 8.2), HomeSide shall apply an amount equal to the Net Cash Proceeds
thereof, on the date of the receipt of such Net Cash Proceeds, to the prepayment
of the Tranche B Loans, FIRST, to any outstanding ABR Loans, SECOND, to any
outstanding Swing Line Loans, THIRD, to any outstanding Eurodollar Loans and
FOURTH, to any outstanding Balance-Based Loans. This paragraph (c) does not
constitute permission for HomeSide or Holdings to incur any Indebtedness not
otherwise permitted by this Agreement and the Holdings Guarantee.
(d) If, subsequent to the Closing Date, Holdings or any
Subsidiary of Holdings shall receive any payment in respect of termination or
equivalent fees under its servicing agreements related to the Eligible Servicing
Portfolio, HonoMo, in the case of any such payment received by HonoMo, or
HomeSide, in the case of any such payment received by Holdings or any Subsidiary
of Holdings other than HonoMo, shall immediately apply an amount equal to the
Net Cash Proceeds thereof to the prepayment of the Loans made to it, FIRST, to
any outstanding Swing Line Loans, SECOND, to any outstanding Tranche B Loans
that are ABR Loans, THIRD, to any outstanding Tranche B Loans that are
Eurodollar Loans and FOURTH, to any outstanding Tranche B Loans that are
Balance-Based Loans.
(e) If Holdings shall consummate the IPO, an amount equal to
100% of the Net Cash Proceeds thereof shall be applied, on the date of receipt
thereof (or, in the case of the portion thereof to be applied to redeem the
Holdings Notes, on such later dates as shall satisfy the requirements applicable
to the redemption of the Holdings Notes with such proceeds), (i) to redeem the
maximum amount of the Holdings Notes that can be redeemed without premium (other
than such premium as is required under the Holdings Notes to effect a repurchase
thereunder with such Net Cash Proceeds of such IPO as contemplated therein)
thereunder under the terms thereof, but in any event not in excess of
$70,000,000 in aggregate principal amount thereof, and (ii) to the extent that
amount of such Net Cash Proceeds exceeds the amount that will be applied to
redemption of the Holdings Notes pursuant to the foregoing clause (i), to the
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47
prepayment of the Loans made to it, FIRST, to any outstanding Tranche B Loans
that are ABR Loans, SECOND, to any outstanding Swing Line Loans, THIRD, to any
outstanding Tranche B Loans that are Eurodollar Loans and FOURTH, to any
outstanding Tranche B Loans that are Balance-Based Loans. Pending application of
the Net Cash Proceeds of the IPO to the redemption of the Holdings Notes
pursuant to clause (i) of the preceding sentence, such Net Cash Proceeds may be
applied to repay other short-term Indebtedness of HomeSide.
(f) If any Lender makes or purchases a Loan on a day on which
a Borrower is to repay all or any part of any outstanding Loan made or purchased
by such Lender, such Lender shall apply the proceeds of the requested Loan to
make such repayment and only an amount equal to the difference (if any) between
the amount such Lender would have otherwise advanced pursuant to subsections 2.3
and 2.7 in the absence of any such repayment and the principal amount of the
Loan being repaid shall be made available by such Lender to the Administrative
Agent as provided in subsections 2.3 and 2.7 or remitted by such Borrower to the
Administrative Agent for the account of such Lender as provided in subsection
3.6.
(g) If any Balance-Based Loan shall be prepaid pursuant to
subsections 3.4(a) through (f), the amount required to prepay such Balance-Based
Loan shall be the net funded amount of such Balance-Based Loan actually advanced
by the Balance Lenders to the applicable Borrower on the relevant Borrowing
Date, together with accreted discount thereon calculated at the Applicable
Margin (based on a 360-day year) for the period commencing on the relevant
Borrowing Date and extending through the date immediately preceding the date of
the prepayment, plus all amounts payable pursuant to subsection 3.11 in
connection therewith. If any Rate-Based Loan or Swing Line Loan shall be prepaid
pursuant to subsection 3.4(a) through (f), the amount required to prepay such
Rate-Based Loans shall be the Principal Amount of such Rate-Based Loan, together
with accrued interest to such date and all amounts payable pursuant to
subsection 3.11 in connection therewith, PROVIDED that so long as no Default or
Event of Default has occurred and is continuing, interest accrued on any ABR
Loan prepaid pursuant to this subsection 3.4 shall be paid on the Interest
Payment Date in respect thereof first following such prepayment rather than on
the date of such prepayment.
3.5 COMPUTATION OF DISCOUNTS, INTEREST AND FEES. (a) Each
Balance Lender Discount and Committed Lender Discount shall be calculated on the
basis of a 360 day year for the actual days elapsed. Interest on ABR Loans
accruing at a rate per annum based upon the Prime Rate shall be calculated on
the basis of a 365 day year for the actual days elapsed; otherwise, all interest
on the Loans shall be calculated on the basis of a 360-day year for the actual
days elapsed. Commitment fees and any other amounts hereunder that are
calculated on a per annum basis shall be calculated on the basis of a 360 day
year for the actual days elapsed. The Administrative Agent shall notify the
Borrowers and the Lenders of each determination of a Eurodollar Rate on the date
of the determination thereof. Any change in the interest rate on a Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change in the ABR or the Eurocurrency Reserve Requirements, as the case may be,
is announced.
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48
(b) Each determination by the Administrative Agent of a
Balance Lender Discount, Committed Lender Discount, ABR, Eurodollar Rate, LIBO
Rate, Applicable Margin or Commitment Fee Rate pursuant to any provision of this
Agreement shall be conclusive and binding on the Borrowers and the Lenders, in
the absence of manifest error. The Administrative Agent shall, at the request of
HomeSide or any Lender, deliver to the Borrowers or such Lender a statement
showing the computations used by the Administrative Agent in determining any
discount, interest rate or fee rate.
3.6 PRO RATA TREATMENT AND PAYMENTS. (a) Each purchase by the
Lenders pursuant to subsection 2.3 of Balance-Based Loans under the Tranche A
Commitments or the Tranche B Commitments, as the case may be, each borrowing by
the Borrowers of Rate- Based Loans under the Tranche A Commitments or the
Tranche B Commitments, as the case may be, and any reduction of the Tranche A
Commitments or the Tranche B Commitments, as the case may be, shall be made pro
rata according to the respective Tranche A Commitment Percentages or the Tranche
B Commitment Percentages of the Lenders. Each payment by a Borrower on account
of any commitment fee under the Tranche A Commitments or the Tranche B
Commitments, as the case may be, shall be made pro rata according to the
respective Tranche A Commitment Percentages or the Tranche B Commitment
Percentages of the Lenders. Each payment (including each prepayment) by a
Borrower on account of principal of and interest on the Loans shall be made pro
rata according to the respective outstanding Principal Amounts of the Loans or
amounts of interest, as the case may be, then due and owing to the Lenders.
(b) All payments (including prepayments) to be made by a
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without set off or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof at the Payment
Office, for the account of the Lenders, in Dollars and in immediately available
funds. Each payment or prepayment of Loans shall be accompanied by (i) a payment
notice in writing or by fax in the form of Exhibit F-3 and shall include the
information required as set forth therein, including the information to be
provided by the Collateral Agent as set forth therein and (ii) a Tranche A
Borrowing Base Certificate, in the case of repayments of Tranche A Loans or
Tranche A Swing Line Loans or a Tranche B Borrowing Base Certificate, in the
case of repayments of Tranche B Loans or Tranche B Swing Line Loans, in each
case dated as of the close of business on the Business Day immediately preceding
such Borrowing Date or as of such Borrowing Date, duly completed by HomeSide,
the applicable Borrower and the Collateral Agent in the manner required by the
Borrower Security Agreements. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension. For the purposes of determining the
obligations of the Borrowers hereunder with respect thereto, any payment by
either Borrower received by the Administrative Agent after 12:00 noon on the due
date thereof shall be deemed to be received on the next succeeding Business Day.
(c) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a Borrowing Date that such Lender will not
make its share of such borrowing
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49
available to the Administrative Agent on such Borrowing Date, the Administrative
Agent may, in its sole discretion, assume that such Lender is making such amount
available to the Administrative Agent, and the Administrative Agent may, in
reliance upon such assumption, make available to the applicable Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on such Borrowing Date, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the Federal Funds Effective Rate for the period until such Lender makes
such amount immediately available to the Administrative Agent. A certificate of
the Administrative Agent submitted to any Lender with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error. If such Lender's share of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such Borrowing
Date, the Administrative Agent shall also be entitled, upon five Business Days'
notice, to recover such amount (less any amounts theretofore made available to
the Administrative Agent by such Lender in respect of such borrowing) with
interest thereon at the rate per annum applicable to ABR Loans hereunder, on
demand, from the applicable Borrower to which such amount was advanced.
(d) Unless the Administrative Agent shall have been notified
in writing by HomeSide prior to a date on which a payment of principal, interest
or fees is due from either Borrower hereunder that such Borrower will not make
such amount available to the Administrative Agent on such due date, the
Administrative Agent may, in its sole discretion, assume that such Borrower is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available a corresponding
amount to the Lenders entitled thereto. If such amount is not made available to
the Administrative Agent by the required time on the due date therefor, the
Administrative Agent shall notify each Lender of such failure, and each Lender
shall pay to the Administrative Agent, on demand, the portion of such amount
received by such Lender with interest thereon at a rate equal to the Federal
Funds Effective Rate for the period from the date of receipt of such amount by
such Lender until such Lender makes such amount immediately available to the
Administrative Agent. A certificate of the Administrative Agent submitted to any
Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
3.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
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50
the Administrative Agent shall give telecopy or telephonic notice thereof (a
"SUBSTITUTE BASIS NOTICE") confirmed in writing, as soon as practicable, to
HomeSide and the Lenders at least one Business Day prior to the requested
Borrowing Date for such Loans. If such Substitute Basis Notice has been given,
HomeSide and the Administrative Agent (in consultation with the Balance Lenders
and the Lenders) shall promptly enter into good faith negotiations with a view
to agreeing upon a Substitute Basis to be used in lieu of the Eurodollar Rate,
including for the purpose of calculating the Committed Lender Discount in
connection with the making of Balance-Based Loans. If on or before the twentieth
day after the date of such Substitute Basis Notice HomeSide and the Balance
Lenders and the Lenders shall agree upon a Substitute Basis, such Substitute
Basis shall, until such Substitute Basis Notice is withdrawn, be applicable to
Eurodollar Loans and Committed Lender Discounts determined after the date of
such Substitute Basis Notice. If a Substitute Basis has not been agreed upon
within such twenty-day period, the Balance Lenders, with the concurrence of the
Required Lenders, shall determine and shall notify the Lenders and HomeSide
(through the Administrative Agent) of the rate basis upon which Eurodollar Loans
and the Committed Lender Discounts will be calculated (which rate basis shall
reflect the rate at which the Lenders are able to fund Eurodollar Loans and the
Balance-Based Loans) and such rate basis shall, until such Substitute Basis
Notice is withdrawn, be applicable to Eurodollar Loans and Committed Lender
Discounts determined after the date of such Substitute Basis Notice. In the
event that any Interest Period commences after the date of a Substitute Basis
Notice and before the date of determination of the Substitute Basis applicable
to such Interest Period as provided in the two preceding sentences, the
Administrative Agent shall preliminarily determine the Substitute Basis
applicable to such Interest Period in its discretion, with payments made at the
end of such Interest Period being appropriately adjusted to give effect to the
Substitute Basis finally determined as provided in the two preceding sentences.
(c) If a Substitute Basis Notice is issued and until it has
been withdrawn (x) any Rate-Based Loans thereafter requested to be made shall be
made as ABR Loans or as Loans the interest rate of which is based on the
Substitute Basis agreed to as set forth above, (y) any ABR Loans that were to
have been converted to Eurodollar Loans shall be continued as ABR Loans or
converted to Loans based on such Substitute Basis and (z) any outstanding
Eurodollar Loans to be continued as Eurodollar Loans shall be converted, on the
last day of the then current Interest Period, to ABR Loans or to Loans based on
such Substitute Basis.
(d) Each Substitute Basis Notice shall be withdrawn by the
Administrative Agent upon the determination by the Required Lenders that the
state of facts which was the basis for such notice no longer exists.
3.8 ILLEGALITY. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Loans then outstanding as Eurodollar Loans or Balance-Based Loans, if
any, shall be converted automatically to ABR Loans on the respective last days
of the then current Interest Periods with respect to such Loans or within such
earlier period as required
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by law. If any such conversion of a Eurodollar Loan occurs on a day which is not
the last day of the then current Interest Period with respect thereto, each
Borrower shall pay to such Lender such amounts, if any, as may be required
pursuant to subsection 3.11. To the extent that any Lender whose Commitment is
terminated pursuant to this subsection 3.8 would otherwise be obligated to
purchase Balance-Based Loans from the Balance Lenders, the Balance Lenders'
obligation to make such Balance-Based Loans shall be reduced.
3.9 REQUIREMENTS OF LAW. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Eurodollar
Loan or any Balance-Based Loan made or purchased by it, or change the
basis of taxation of payments to such Lender in respect thereof (except
for Non-Excluded Taxes covered by subsection 3.10 and changes in the
rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or any
other acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate or the
Committed Lender Discount hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, purchasing,
converting into, continuing or maintaining Eurodollar Loans or Balance-Based
Loans or to reduce any amount receivable hereunder in respect thereof, then, in
any such case, the Borrower to which such Loans were made shall promptly pay
such Lender such additional amount or amounts as will compensate such Lender for
such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, HomeSide shall promptly pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction.
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(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify HomeSide (with a
copy to the Administrative Agent) of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to HomeSide (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
3.10 TAXES. (a) All payments made by the Borrowers under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts
payable to the Administrative Agent or any Lender hereunder or under any Note,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement, PROVIDED, HOWEVER, that the Borrowers shall not be required to
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by either Borrower, as promptly as possible
thereafter HomeSide shall send to the Administrative Agent for its own account
or for the account of such Lender, as the case may be, a certified copy of an
original official receipt received by such Borrower showing payment thereof. If
such Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent the required
receipts or other required documentary evidence, HomeSide shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to HomeSide and the Administrative Agent
(A) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224, or
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53
successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the
case may be;
(ii) deliver to HomeSide and the Administrative Agent
two further copies of any such form or certification on or before the
date that any such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change in the most
recent form previously delivered by it to HomeSide; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested by
HomeSide or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises HomeSide and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 11.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
3.11 INDEMNITY. Each Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by such Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans, CAF Advances
or Balance-Based Loans after notice has been given requesting the same in
accordance with the provisions of this Agreement, (b) default by such Borrower
in making any prepayment after notice thereof has been given in accordance with
the provisions of this Agreement, (c) the making by such Borrower of a
prepayment or conversion of Eurodollar Loans or Balance-Based Loans on a day
which is not the last day of an Interest Period with respect thereto or (d) the
making by such Borrower of a prepayment of any CAF Advance on a day which is not
the CAF Advance Maturity Date applicable thereto. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued (or, in the case of Balance-Based Loans, the amount of
the Committed Lender Discount) on the amount so prepaid or converted, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or conversion or of such failure to borrow, convert or continue to
the last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest (or, in the
case of Balance-Based Loans, the applicable Committed Lender Discount) for such
Loans provided for herein (excluding, however, the Applicable Margin included
therein, if any) over (ii) the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on
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such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
SECTION 4. BORROWING BASE AND ELIGIBLE COLLATERAL
4.1 TRANCHE A BORROWING BASE. The "HOMESIDE TRANCHE A
BORROWING BASE" shall be, as of any date, the sum of the amounts determined by
applying the percentages set forth below to the respective values of assets of
HomeSide, and the "HONOMO TRANCHE A BORROWING BASE" shall be, as of any date,
the sum of the amounts determined by applying the percentages set forth below to
the respective values of assets of HonoMo, in each case described in
subparagraphs (a) through (d) below which are deemed Delivered hereunder as of
such date (without duplication in the event that any such asset is converted
from one category to another) subject to the sublimits set forth below and to
the other provisions hereof (terms used in this subsection 4.1 and not defined
in subsection 1.1 being defined in subsection 4.3):
(a) for Eligible First Mortgage Loans, 98% of the least of (i)
the current unpaid principal balance thereof, (ii) the acquisition cost
thereof (minus discount points and fees associated with yield), and
(iii) the Applicable Take-Out Price thereof multiplied by the current
unpaid principal balance thereof;
(b) for Eligible Second Mortgage Loans, 95% of the least of
(i) the current unpaid principal balance thereof, (ii) the acquisition
cost thereof (minus discount points and fees associated with yield),
and (iii) the Applicable Take-Out Price thereof multiplied by the
current unpaid principal amount thereof;
(c) for Eligible Mortgage-Backed Securities, 99% of the lesser
of (i) the face amount thereof, and (ii) the Applicable Take-Out Price
multiplied by the face amount thereof; and
(d) cash or Cash Equivalents pledged as Collateral in
accordance with the applicable Borrower Security Agreement and held in
the Settlement Accounts referred to in such Borrower Security
Agreement;
PROVIDED, that the HomeSide Tranche A Borrowing Base in effect on any date shall
be deemed reduced by the outstanding principal amount of Permitted Commercial
Paper on such date;
and FURTHER PROVIDED that, at any time, the maximum portion of either the
HomeSide Tranche A Borrowing Base or the HonoMo Tranche A Borrowing Base
attributable to the value of assets determined under subparagraphs (a) and (b)
above at such time shall be subject to the following sublimits:
(i) the portion of such Tranche A Borrowing Base
attributable to Eligible Wet Loans shall not, except during the first
two Business Days commencing on the first day
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of any Negative Security Period, exceed 30% of the Tranche A Commitment
Amount less the HonoMo Tranche A Sublimit at such time, in the case of
the HomeSide Tranche A Borrowing Base, or 30% of the HonoMo Tranche A
Sublimit at such time, in the case of the HonoMo Tranche A Borrowing
Base;
(ii) the portion of such Tranche A Borrowing Base
attributable to Eligible Mortgage Loans with respect to which the
related promissory notes (or related note modification agreements) are
dated earlier than 180 days prior to inclusion of such Eligible
Mortgage Loans in such Tranche A Borrowing Base shall not exceed 5% of
the Tranche A Commitment Amount less the HonoMo Tranche A Sublimit at
such time, in the case of the HomeSide Tranche A Borrowing Base, or 5%
of the HonoMo Tranche A Sublimit at such time, in the case of the
HonoMo Tranche A Borrowing Base, and no such Eligible Mortgage Loans
may be so included in such Tranche A Borrowing Base unless (A) they are
covered by and allocated to one or more specific Eligible Take-Out
Commitments and (B) the related promissory notes (or related note
modification agreements) are dated not earlier than 25 months prior to
inclusion of such Eligible Mortgage Loans in such Tranche A Borrowing
Base;
(iii) the portion of such Tranche A Borrowing Base
attributable to Eligible First Mortgage Loans having an original
principal balance in excess of $1,000,000 shall not exceed 5% of the
Tranche A Commitment Amount less the HonoMo Tranche A Sublimit at such
time, in the case of the HomeSide Tranche A Borrowing Base, or 5% of
the HonoMo Tranche A Sublimit at such time, in the case of the HonoMo
Tranche A Borrowing Base;
(iv) the portion of the Tranche A Borrowing Base
attributable to Eligible Second Mortgage Loans shall not exceed 10% of
the Tranche A Commitment Amount less the HonoMo Tranche A Sublimit at
such time, in the case of the HomeSide Tranche A Borrowing Base, or 10%
of the HonoMo Tranche A Sublimit at such time, in the case of the
HonoMo Tranche A Borrowing Base; and
(v) the portion of the Tranche A Borrowing Base
attributable to Nonconforming Mortgage Loans constituting Eligible
First Mortgage Loans shall not exceed 30% of the Tranche A Commitment
Amount less the HonoMo Tranche A Sublimit at such time, in the case of
the HomeSide Tranche A Borrowing Base, or 30% of the HonoMo Tranche A
Sublimit at such time, in the case of the HonoMo Tranche A Borrowing
Base;
and FURTHER PROVIDED that no Mortgage Loan purchased by a Borrower with the
proceeds of an Eligible Early Buyout Advance or Eligible Paid-in-Full Buyout
Advance shall be included in such Borrower's Tranche A Borrowing Base.
Each Tranche A Borrowing Base shall be determined by reference to the
most recent Tranche A Borrowing Base Certificate delivered by the Collateral
Agent to the Administrative Agent absent any error in such Tranche A Borrowing
Base Certificate as of the date delivered.
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4.2 TRANCHE B BORROWING BASE. The "HOMESIDE TRANCHE B
BORROWING BASE" shall be, as of any date, the sum of the amounts determined by
applying the percentages set forth below to the respective values of assets of
HomeSide, and the "HONOMO TRANCHE B BORROWING BASE" shall be, as of any date,
the sum of the amounts determined by applying the percentages set forth below to
the respective values of assets of HonoMo, in each case described in
subparagraphs (a) through (g) below which are deemed Delivered hereunder as of
such date (without duplication in the event any such asset is converted from one
category to another) subject to the sublimits set forth below and to the other
provisions hereof (terms used in this subsection 4.2 and not defined in
subsection 1.1 being defined in subsection 4.3):
(a) 90% of Eligible P&I Advance Receivables;
(b) 80% of Eligible T&I Advance Receivables;
(c) 85% of Eligible Early Buyout Advance Receivables;
(d) 85% of Eligible Foreclosure Advance Receivables;
(e) 85% of Eligible Default-Related Advance Receivables;
(f) 85% of Eligible Paid-in-Full Buyout Advance Receivables;
and
(g) the lesser of (i) 70% of (A) the Appraised Value of the
Eligible Servicing Portfolio MINUS (B) the MTN Deduction Amount at such
time and (ii) the remainder of (A) 1.35% of the aggregate unpaid
principal balance of the underlying Mortgage Loans in respect of the
Eligible Servicing Portfolio MINUS (B) the MTN Deduction Amount at such
time;
PROVIDED that, at any time, the maximum portion of either the HomeSide Tranche B
Borrowing Base or the HonoMo Tranche B Borrowing Base attributable to the value
of assets determined under subparagraphs (a), (b), (c), (d), (e) and (f) above
at such time shall not exceed 50% of the Tranche B Commitment Amount less the
HonoMo Tranche B Sublimit at such time, in the case of the HomeSide Tranche B
Borrowing Base, or 50% of the HonoMo Tranche B Sublimit at such time, in the
case of the HonoMo Tranche B Borrowing Base.
Each Tranche B Borrowing Base shall be determined by reference to the most
recent Tranche B Borrowing Base Certificate delivered by the Collateral Agent to
the Administrative Agent absent any error in such Tranche B Borrowing Base
Certificate as of the date delivered.
4.3 BORROWING BASE DEFINITIONS. As used in this Section 4 and
in the other provisions of this Agreement and the other Loan Documents, the
following terms shall have the following meanings, PROVIDED that (a) for the
purpose of the use of each such term in determining the HomeSide Tranche A
Borrowing Base or the HomeSide Tranche B Borrowing Base, (i) each reference to
the Borrower therein shall be deemed to refer to HomeSide, (ii) each reference
therein to the Borrower Security Agreement shall be deemed to refer to the
HomeSide Security
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Agreement, and (iii) each reference to the Tranche A Borrowing Base or the
Tranche B Borrowing Base therein shall refer to the HomeSide Tranche A Borrowing
Base or the HomeSide Tranche B Borrowing Base, respectively, and (b) for the
purpose of the use of each such term in determining the HonoMo Tranche A
Borrowing Base or the HonoMo Tranche B Borrowing Base, (i) each reference to the
Borrower therein shall be deemed to refer to HonoMo, (ii) each reference therein
to the Borrower Security Agreement shall be deemed to refer to the HonoMo
Security Agreement, and (iii) each reference to the Tranche A Borrowing Base or
the Tranche B Borrowing Base therein shall refer to the HonoMo Tranche A
Borrowing Base or the HonoMo Tranche B Borrowing Base, respectively:
"ACKNOWLEDGMENT AGREEMENTS": collectively, the FHLMC
Acknowledgment Agreement, the FNMA Acknowledgment Agreement, each
Approved Investor Acknowledgment Agreement and, in the event that the
Administrative Agent has determined that any such form is acceptable as
set forth in the definition of GNMA Acknowledgement Agreement, the GNMA
Acknowledgement Agreement.
"AGENCY GUIDES": collectively, the FHLMC Guide, the FNMA
Guide and the GNMA Guide.
"APPLICABLE TAKE-OUT PRICE": as of any date, (a) for each
Eligible Mortgage Loan included in the Tranche A Borrowing Base, the
weighted average net purchase price (expressed as a percentage) of the
Eligible Take-Out Commitments under which such Eligible Mortgage Loan
could be sold, and (b) for each Eligible Mortgage-Backed Security
included in the Tranche A Borrowing Base, the weighted average net
purchase price (expressed as a percentage) of the Eligible Take-Out
Commitments under which such Eligible Mortgage-Backed Security could be
sold (assuming the simultaneous shipment and sale by the Borrower of
all other Eligible Mortgage-Backed Securities). The weighted average
net purchase price of all Eligible Take-Out Commitments covering
Eligible Mortgage Loans or Eligible Mortgage- Backed Securities in the
Tranche A Borrowing Base shall be determined weekly pursuant to the
commitment status report delivered to the Administrative Agent pursuant
to subsection 7.2(j)(i) absent any error therein (or if such report has
not been delivered to the Administrative Agent as required by such
subsection 7.2(j), such other weighted average net purchase price as
the Administrative Agent shall determine until such report has been
delivered to the Administrative Agent). For purposes of determining the
Applicable Take-Out Price, each commitment status report shall become
effective on the first Business Day of the week immediately following
the week in which such commitment status report is delivered to the
Administrative Agent.
"APPRAISED VALUE": with respect to the Eligible Servicing
Portfolio at any time, the amount determined by an independent
appraiser acceptable to the Administrative Agent as set forth in the
most recent Appraisal delivered to the Administrative Agent pursuant to
subsection 7.2(h), until the next monthly determination described in
clause (ii) below or, if earlier, the delivery of the next succeeding
Appraisal, or (ii) in the case of any determination of Appraised Value
for the purposes hereof made on or after the first
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calendar month-end succeeding delivery of an Appraisal pursuant to
subsection 7.2(h) and prior to the next such delivery pursuant to
subsection 7.2(h), such value, determined as at the same day of each
calendar month occurring during such period (such day to be the first
day of such determination after the Closing Date) and ending most
recently prior to such determination, by applying the percentage value
shown in the most recent Appraisal thereof for each type of investor to
the then unpaid principal balance of the Eligible Servicing Portfolio
attributable to each such type of investor as determined in such recent
Appraisal, all as certified, in the case of determinations in
connection with any Borrowing Date, in the applicable worksheet
accompanying the related Borrowing Notice, and subject to the
discretion of the Administrative Agent to request an Appraisal pursuant
to subsection 7.2(h) to determine such Appraised Value, or (iii) in the
event that any Appraisal has not been delivered to the Administrative
Agent as required by such subsection 7.2(h), such other amount as the
Administrative Agent shall reasonably determine until such Appraisal
has been delivered in form and substance satisfactory to the
Administrative Agent, PROVIDED that in the event that at any time the
Borrower purchases any additional portfolio of servicing rights, the
Borrower may submit a certificate setting forth the adjustment to the
Appraised Value in respect thereof, determined as set forth in clause
(ii) above, and the Administrative Agent may either accept such
adjustment as set forth in such certificate, effective upon such
acceptance, or request an Appraisal to determine the adjustment to
Appraised Value in respect thereof. For purposes of determining the
Appraised Value of the Eligible Servicing Portfolio, (i) each Appraisal
shall become effective on the first Business Day upon which such
Appraisal has been both delivered to and accepted by the Administrative
Agent and shall continue to be effective until such delivery and
acceptance of a new Appraisal, and (ii) each adjustment to Appraised
Value pursuant clause (ii) above shall become effective upon the first
Business Day upon which the certificate described therein has been both
delivered to and accepted by the Administrative Agent and shall
continue to be effective until the earlier of such delivery and
acceptance of the next such monthly adjustment or such delivery and
acceptance of a new Appraisal, PROVIDED that, in the event that, after
delivery and before acceptance of any certificate with respect to any
such adjustment to Appraised Value pursuant to clause (ii), the
Administrative Agent requests a new Appraisal, the Appraised Value in
effect immediately prior to delivery of such certificate shall continue
in effect until the delivery and acceptance of such new Appraisal.
"APPROVED INVESTOR": FNMA, FHLMC, or an investor acceptable to
the Administrative Agent, which acceptable investors are listed (i) on
Schedule II, under the heading "Loan Sales", in the case of Approved
Investors for eligible Collateral under the Tranche A Borrowing Base,
or (ii) on Schedule II, under the heading "Servicing", in the case of
Approved Investors for eligible Collateral under the Tranche B
Borrowing Base, as such Schedule II is supplemented with additional
Persons which, at the request of the Borrower, the Administrative Agent
may, in its discretion, from time to time agree in writing to add
thereto, PROVIDED that by notice to the Borrower, the Administrative
Agent may in its discretion, based on its evaluation of the
creditworthiness or funding ability of any investor listed on Schedule
II, determine that such investor is no longer an Approved Investor,
effective as of the time of such notice to the Borrower (or such other
effective
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59
time as the Borrower and the Administrative Agent may agree upon) and
PROVIDED FURTHER, that no such determination by the Administrative
Agent that an investor is no longer an Approved Investor shall affect
the value of any assets then included in the Tranche A Borrowing Base
or the Tranche B Borrowing Base as determined in accordance with this
Section 4 unless, in the case of any such assets included in the
Tranche A Borrowing Base, the Administrative Agent determines that the
reasons for such investor no longer being an Approved Investor
materially impair such value of such assets, in which case the
Administrative Agent shall determine the appropriate value of such
asset in accordance with its ordinary practice.
"APPROVED INVESTOR ACKNOWLEDGMENT AGREEMENT": an agreement
pursuant to which an investor (other than FNMA, FHLMC or GNMA)
acknowledges the Lien of the Collateral Agent, for the benefit of the
Secured Parties, on Non-Recourse Servicing Rights relating to Mortgage
Loans sold to or securitized through such investor, in form and
substance satisfactory to the Administrative Agent.
"BMC SERVICING RIGHTS": Direct Servicing Rights owned by BMC
and retained by BMC after the Closing Date (i) with respect to which
all representations and warranties contained in the BMC Security
Agreement applicable thereto are true and correct, (ii) subject to the
Barnett Subservicing Agreement, dated as of May 31, 1996, between
HomeSide and BMC, as in effect on the Closing Date and (iii) the
aggregate unpaid principal balance of the related mortgage loans in
respect thereof does not exceed $1,225,000,000.
"BOOK-ENTRY MORTGAGE-BACKED SECURITY": a Mortgage-Backed
Security (a) that is not represented by a certificate (other than the
physical security issued to GNMA's nominee, MBSCC & Co., or any
successor thereto, representing a GNMA Mortgage- Backed Security) and
(b) the ownership and transfer of which are entered upon books
maintained for that purpose by a depositary.
"CONVENTIONAL MORTGAGE LOAN": a Mortgage Loan that is not
insured or guaranteed by the United States federal government or any
agency or instrumentality thereof.
"DELIVERED": (a) at any time from the date on which a Positive
Security Event has occurred until the occurrence of a Negative Security
Event, an asset to be included in the Tranche A Borrowing Base or
Tranche B Borrowing Base, as the case may be, shall be deemed
"DELIVERED" hereunder if (i) the representations and warranties
applicable thereto contained in the applicable Security Agreement
(other than those set forth in Section 8(a)(v) thereof) are true and
correct, and (ii) such asset has been described in a Borrowing Base
Certificate delivered to the Administrative Agent, and (b) at any other
time, an asset to be included in the Tranche A Borrowing Base or
Tranche B Borrowing Base, as the case may be, shall be deemed
"DELIVERED" hereunder if (i) the representations and warranties
applicable thereto contained in the applicable Security Agreement
(including, without limitation, those set forth in Section 8(a)(v)
thereof) are true and
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correct and (ii) such asset has been described in a Borrowing Base
Certificate delivered to the Administrative Agent.
"DIRECT SERVICING RIGHTS": the rights of the Borrower or, in
the case of the BMC Servicing Rights, BMC to service Mortgage Loans for
or on behalf of the owner or holder of such Mortgage Loans (including
investors in mortgage-backed securities backed by Mortgage Loans)
pursuant to a direct agreement between the Borrower or BMC, as the case
may be, and an Agency or such owner or holder. In furtherance and not
in limitation of the foregoing, subservicing rights (other than BMC
Servicing Rights to the extent set forth herein) shall not constitute
Direct Servicing Rights.
"ELIGIBLE DEFAULT-RELATED ADVANCE": an advance made by the
Borrower (which advance has not been repaid or reimbursed to the
Borrower) to inspect, protect, preserve or repair a Property subject to
a Mortgage Loan that is in default and which is serviced or, in the
case of the BMC Servicing Rights, subserviced, by the Borrower, or for
similar or related purposes, as required by the FNMA Guide, the FHLMC
Guide or other Approved Investor guidelines or as a prudent servicer
would reasonably deem appropriate, including, but not limited to,
necessary legal fees and costs expended for foreclosure, bankruptcy,
eviction or litigation actions as well as costs to obtain clear title.
"ELIGIBLE DEFAULT-RELATED ADVANCE RECEIVABLES": on any date,
the aggregate amount reasonably expected to be recovered by the
Borrower from the applicable mortgagors in respect of Eligible
Default-Related Advances outstanding as of such date if such mortgagors
reinstate, pay off or redeem the related Mortgage Loans or from the
FHA, the VA or the applicable Approved Investor, as the case may be,
upon liquidation of such Mortgage Loans (such amount not to exceed the
amount advanced by the Borrower under the related Eligible
Default-Related Advances), other than such receivables that have been
included in the Tranche B Borrowing Base for a period of more than 18
months (which period shall be extended to 3 years for receivables
relating to Mortgage Loans with respect to which the related mortgagor
is the subject of a bankruptcy proceeding).
"ELIGIBLE EARLY BUYOUT ADVANCE": an advance made by the
Borrower (which advance has not been repaid or reimbursed to the
Borrower) which does not yet qualify as an Eligible Foreclosure
Advance: to repurchase an FHA-insured or VA-guaranteed first priority
Mortgage Loan or a first priority Conventional Mortgage Loan which is
an Eligible Mortgage Loan (except for its failure to satisfy the
requirements of subsections (d) and (e) of the definition of the term
"Eligible Mortgage Loan", as a result of the default thereunder), in
each case (i) which has (A) a mortgagor who has voluntarily surrendered
to the Borrower possession of the Property securing such Mortgage Loan,
or (B) any payment 90 days or more past due and the Borrower has
reasonably determined that the reinstatement of such Mortgage Loan to a
current status is unlikely, (ii) which has been repurchased by the
Borrower out of a pool of Mortgage Loans underlying GNMA, FNMA or FHLMC
Mortgage-Backed Securities or issued by an Approved Investor, and (iii)
during any Negative Security Period (commencing two Business Days after
the first
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day of such Negative Security Event) with respect to which the Required
Documentation described in clauses 1 and 3 of ATTACHMENT 2 to the
Borrower Security Agreement has been delivered to the Collateral Agent
on or prior to the funding of a Tranche B Loan, the proceeds of which
are used to reimburse the Borrower for such advance.
"ELIGIBLE EARLY BUYOUT ADVANCE RECEIVABLES": on any date, the
aggregate amount receivable by the Borrower from the FHA, the VA or the
applicable Approved Investor, as the case may be, as of such date as
reimbursement of Eligible Early Buyout Advances (such amount not to
exceed the aggregate amount of principal and accrued interest due under
the related Mortgage Loans repurchased with the proceeds of such
Eligible Early Buyout Advances as of the date of repurchase of such
Mortgage Loans by the Borrower), other than such receivables (a) that
have been included in the Tranche B Borrowing Base for a period of more
than 18 months (which period shall be extended to 3 years for
receivables relating to Mortgage Loans with respect to which the
related mortgagor is the subject of a bankruptcy proceeding), (b)
created in connection with an Eligible Early Buyout Advance with
respect to a Mortgage Loan as to which Mortgage Loan notice or other
indication has been given by the FHA, the VA or the applicable Approved
Investor, as the case may be, challenging its obligation to pay the
full amount due in connection therewith, including such amount due on
any insurance or guaranty certificate issued or made in connection
therewith, or (c) created in connection with an Eligible Early Buyout
Advance with respect to a Mortgage Loan that has been reinstated,
redeemed or classified a "No-Bid" by the VA, PROVIDED that such
receivables described in this clause (c) shall not cease to be Eligible
Early Buyout Advance Receivables until the earlier to occur of (i) the
Borrower's obtaining knowledge of such reinstatement, redemption or
classification, and (ii) the 10th day following such reinstatement,
redemption or classification.
"ELIGIBLE FIRST MORTGAGE LOAN": an Eligible Mortgage Loan that
(a)(i) is either FHA-insured or VA-guaranteed or (ii) fully conforms to
all underwriting and other requirements of an Approved Investor and has
an original principal balance not exceeding $1,500,000 (provided that
Eligible Mortgage Loans that are covered by an Eligible Take-Out
Commitment from an Approved Investor may have an original principal
balance of up to $5,000,000), (b) is covered by one or more Eligible
Take- Out Commitments or by a Hedge Contract, PROVIDED that if such
Mortgage Loan has an original principal balance in excess of
$1,000,000, such Mortgage Loan must be covered by and allocated to one
or more specific Eligible Take-Out Commitments, (c) has not been
included in the Tranche A Borrowing Base for a period of more than 180
days, and (d) satisfies the requirements of clause (i) of paragraph (b)
of the definition of Eligible Mortgage Loan.
"ELIGIBLE FORECLOSURE ADVANCE": an advance made by the
Borrower (which advance has not been repaid or reimbursed to the
Borrower): to repurchase an FHA- insured or VA-guaranteed first
priority Mortgage Loan or a first priority Conventional Mortgage Loan
out of a pool of Mortgage Loans underlying GNMA, FNMA or FHLMC
Mortgage-Backed Securities or mortgage-backed securities issued by an
Approved Investor, in each case for which a foreclosure sale has been
completed or a deed in lieu of
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foreclosure has been executed and for which a claim against the FHA,
the VA or the applicable Approved Investor has been filed or is in
process.
"ELIGIBLE FORECLOSURE ADVANCE RECEIVABLES": on any date, the
aggregate amount receivable by the Borrower from the FHA, the VA, or
the applicable Approved Investor, as the case may be, as of such date
as reimbursement of Eligible Foreclosure Advances (such amount not to
exceed the aggregate amount of principal and accrued interest due with
respect to the related Mortgage Loans as of the date of repurchase of
such Mortgage Loans by the Borrower), other than such receivables (a)
that have been included in the Tranche B Borrowing Base for a period of
more than 18 months (which period shall be extended to 3 years for
receivables relating to Mortgage Loans with respect to which the
related mortgagor is the subject of a bankruptcy proceeding) or (b)
created in connection with an Eligible Foreclosure Advance with respect
to a Mortgage Loan as to which Mortgage Loan notice or other indication
has been given by the FHA, the VA or the applicable Approved Investor,
as the case may be, challenging its obligation to pay the full amount
due in connection therewith, including such amount due on any insurance
or guaranty certificate issued or made in connection therewith.
"ELIGIBLE MORTGAGE-BACKED SECURITY": a Mortgage-Backed
Security owned by the Borrower with respect to which each of the
following statements is true and correct:
(a) such Mortgage-Backed Security is a valid and
binding obligation of the Obligor thereon, is in full force
and effect and is enforceable in accordance with its terms;
(b) such Mortgage-Backed Security is free of any
default and from any rescission, cancellation or avoidance,
and all rights thereof, whether by operation of law or
otherwise;
(c) during any Negative Security Period, such
Mortgage-Backed Security has either been deposited with and is
held by the Collateral Agent or an agent, bailee and custodian
of the Collateral Agent under the Borrower Security Agreement
(or by a Person who has executed a custodial agreement
acceptable to the Administrative Agent and the Collateral
Agent), properly endorsed in blank for transfer or, if such
Mortgage-Backed Security is a Book- Entry Mortgage-Backed
Security, such Mortgage-Backed Security is the subject of a
Perfected Assignment;
(d) such Mortgage-Backed Security is free and clear
of all liens, encumbrances, charges, rights and interests of
any kind (other than Eligible Take-Out Commitments), except in
favor of the Collateral Agent, for the benefit of the Secured
Parties; and
(e) such Mortgage-Backed Security is covered by and
allocated to one or more specific Eligible Take-Out
Commitments.
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"ELIGIBLE MORTGAGE LOAN": a Mortgage Loan owned by the
Borrower with respect to which each of the following statements is true
and correct:
(a) such Mortgage Loan is a binding and valid
obligation of the Obligor thereon, is in full force and effect
and is enforceable in accordance with its terms;
(b) such Mortgage Loan is secured by (i) a first
priority mortgage (or deed of trust) on the Property
encumbered thereby, or (ii) a second priority mortgage (or
deed of trust) on the Property encumbered thereby;
(c) such Mortgage Loan is genuine in all respects as
appearing on its face or as represented in the books and
records of the Borrower, and all information set forth therein
is true and correct;
(d) such Mortgage Loan is free of any material
default (other than as permitted in subsection (e) below) of
any party thereto (including the Borrower), counterclaims,
offsets and defenses and from any rescission, cancellation or
avoidance, and all rights thereof, whether by operation of law
or otherwise;
(e) no payment under such Mortgage Loan is more than
thirty (30) days past due the payment due date set forth in
the underlying promissory note and mortgage (or deed of
trust);
(f) the underlying mortgage (or deed of trust) for
such Mortgage Loan and promissory note, together with any
related note modification agreement, contain the entire
agreement of the parties thereto with respect to the subject
matter thereof, have not been modified or amended in any
respect and such Mortgage Loan is free of concessions or
understandings with the Obligor thereon of any kind not
expressed in writing therein;
(g) such Mortgage Loan is in all respects in
accordance with all applicable laws and regulations governing
the same, including the federal Consumer Credit Protection Act
and the regulations promulgated thereunder and all applicable
usury laws and restrictions; and all notices, disclosures and
other statements or information required by law or regulation
to be given, and any other act required by law or regulation
to be performed, in connection with such Mortgage Loan have
been given and performed as required;
(h) all advance payments and other deposits on such
Mortgage Loan have been paid in cash, and no part of such sums
has been loaned, directly or indirectly, by the Borrower to
the Obligor thereon;
(i) such Mortgage Loan is free and clear of all
liens, encumbrances, charges, rights and interests of any kind
(other than Take-Out Commitments),
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except in favor of the Collateral Agent, for the benefit of
the Secured Parties, under the Borrower Security Agreement;
(j) the Property encumbered by such Mortgage Loan is
insured against loss or damage by fire and all other hazards
normally included within standard extended insurance coverage
(including flood plain insurance if such Property is located
in a federally designated flood plain) in accordance with the
provisions of such Mortgage Loan with the Borrower and its
assigns named as a loss payee thereon;
(k) the Property encumbered by such Mortgage Loan is
free and clear of all Liens other than Liens in favor of the
Borrower which have been assigned by the Borrower to the
Collateral Agent, for the benefit of the Secured Parties,
under the Borrower Security Agreement, except (A) in the case
of first priority Mortgage Loans, junior Liens permitted by
the Agency Guides or the underwriting criteria of other
Approved Investors for Mortgage Loans conforming to the
requirements of the applicable Agency Guide or Approved
Investor guidelines, (B) in the case of second priority
Mortgage Loans, a first priority Lien or junior Liens
permitted by the Agency Guides or the underwriting criteria of
other Approved Investors for Mortgage Loans conforming to the
requirements of the applicable Agency Guide or Approved
Investor guidelines, and (C) in the case of all Mortgage
Loans:
(i) Liens in respect of real property
taxes and assessments not yet due and payable;
(ii) covenants, conditions and
restrictions, rights of way, easements and other
matters of public record, as of the date of
recording, being acceptable to mortgage lending
institutions generally and specifically referred to
in a lender's title insurance policy delivered to the
originator of such Mortgage Loan and (A) referred to
or otherwise considered in the appraisal (if any)
made for the originator of such Mortgage Loan or (B)
that do not materially adversely affect the appraised
value of such Property as set forth in such appraisal
(if any);
(iii) other matters to which like
properties are commonly subject that do not
materially interfere with the benefits of the
security intended to be provided by such Mortgage
Loan or the use, enjoyment, value or marketability of
the related Property; and
(iv) subordinate financing and liens
that would be permitted title exceptions pursuant to
the applicable Agency Guide or the underwriting
criteria of other Approved Investors for Mortgage
Loans conforming to the requirements of the
applicable Agency Guide or Approved Investor
guidelines;
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(l) if the promissory note for such Mortgage Loan (or
any other documentation relating thereto) has been withdrawn
from the possession of the Collateral Agent on the terms and
subject to the conditions set forth in Section 6 of the
Borrower Security Agreement, (i) such note or other
documentation has been released to the Borrower in accordance
with Section 6(a) of the Borrower Security Agreement and such
release has occurred within the immediately preceding fourteen
(14) days, PROVIDED that if the aggregate value (determined in
accordance with subsection 4.1) of Mortgage Loans for which
such notes or other documentation have been released as
provided above exceeds 1% of the Tranche A Commitment Amount
less the HonoMo Tranche A Sublimit at such time, in the case
of the HomeSide Tranche A Borrowing Base, or of the HonoMo
Tranche A Sublimit, in the case of the HonoMo Tranche A
Borrowing Base, such excess shall be deducted from the Tranche
A Borrowing Base, (ii) the promissory note and any related
documentation for such Mortgage Loan has been shipped by the
Collateral Agent directly to an Approved Investor for purchase
in accordance with Section 6(b) of the Borrower Security
Agreement and such shipment has occurred within the
immediately preceding forty-five (45) days, or (iii) the
promissory note and any related documentation for such
Mortgage Loan has been shipped by the Collateral Agent to a
Certificating Custodian in accordance with Section 6(e) of the
Borrower Security Agreement and such shipment has occurred
within the immediately preceding ten (10) days if Section
6(e)(i) of the Borrower Security Agreement is applicable or
within the immediately preceding forty-five (45) days if
Section 6(e)(ii) of the Borrower Security Agreement is
applicable;
(m) with respect to first priority Conventional
Mortgage Loans, if the Loan-to-Value Ratio of such Mortgage
Loan exceeds eighty percent (80%), such Mortgage Loan is the
subject of a private mortgage insurance policy issued in favor
of the Borrower by an insurer approved by an Agency or by the
applicable Approved Investor;
(n) except as provided in clause (ii) of the first
proviso to subsection 4.1, the date of the promissory note (or
related note modification agreement) related to such Mortgage
Loan is no earlier than one hundred and eighty (180) days
prior to the date such Mortgage Loan was first included in the
Tranche A Borrowing Base;
(o) if such Mortgage Loan is FHA-insured or
VA-guaranteed, such insurance or guaranty is in full force and
effect (or there exists a binding commitment to issue such
insurance or guaranty subject to the satisfaction of customary
conditions);
(p) (i) the Collateral Agent (other than during the
first two Business Days of any Negative Security Period then
in effect) or, at any time other than during any Negative
Security Period, the applicable Borrower, shall have
received for such Mortgage Loan, prior to or simultaneously
with its inclusion in the
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Tranche A Borrowing Base, the Required Documentation for such
Mortgage Loan described on ATTACHMENT 2 to the Borrower
Security Agreement (PROVIDED that if the Collateral Agent (or
the applicable Borrower, at any time other than during a
Negative Security Period) fails to receive such Required
Documentation for such Mortgage Loan prior to or
simultaneously with its inclusion in the Tranche A Borrowing
Base, then (A) the Collateral Agent (or the Administrative
Agent, at any time other than during a Negative Security
Period) shall have received a Tranche A Borrowing Base
Addition Report in the form attached to the Borrower Security
Agreement as ATTACHMENT 1 relating to such Mortgage Loan prior
to or simultaneously with such Mortgage Loan's inclusion
therein; and (B) the Collateral Agent or, at any time other
than during any Negative Security Period, the applicable
Borrower, shall receive such Required Documentation within 10
days after such Mortgage Loan's inclusion in the Tranche A
Borrowing Base), (ii) the Borrower holds in trust for the
Secured Parties those items described on ATTACHMENT 2 to the
Borrower Security Agreement, and (iii) during any Negative
Security Period (other than the first two Business Days after
the commencement thereof), there has been delivered to the
Collateral Agent, if the Collateral Agent has so requested in
writing, the additional items described on ATTACHMENT 8 to the
Borrower Security Agreement;
(q) except for the existence of a commitment to sell
such Mortgage Loan on a servicing-released basis, such
Mortgage Loan is not subject to any servicing arrangement with
any Person other than HomeSide nor are any servicing rights
relating to such Mortgage Loan subject to any lien, claim,
interest or negative pledge in favor of any Person other than
as permitted hereunder;
(r) if an appraisal is required by the applicable
Approved Investor, the appraisal obtained by the Borrower in
connection with the origination of such Mortgage Loan
satisfies all appraisal requirements of such Approved
Investor; and
(s) the improvements on the Property encumbered by
such Mortgage Loan consist of a completed one- to four-family
residence (other than a mobile home or other temporary housing
facility).
"ELIGIBLE P&I ADVANCE": an advance of principal and interest
made by the Borrower (which advance has not been repaid or reimbursed
to the Borrower) pursuant to the Borrower's obligation to do so under a
servicing agreement or, in the case of the BMC Servicing Rights,
subservicing agreement, as the case may be, in respect of Non- Recourse
Servicing Rights with respect to the servicing of first priority
Mortgage Loans, which advance is reimbursable by the FHA, the VA or the
applicable Approved Investor, and which advance was made not more than
thirty (30) days prior to the date on which the determination of
whether such advance is an Eligible P&I Advance is made.
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"ELIGIBLE P&I ADVANCE RECEIVABLES": on any date, the aggregate
amount receivable by the Borrower from the FHA, the VA or the
applicable Approved Investor, as the case may be, as of such date as
reimbursement of Eligible P&I Advances (such amount not to exceed the
amount advanced by the Borrower under the related Eligible P&I
Advances), other than such receivables (a) created in connection with
an Eligible P&I Advance with respect to a Mortgage Loan as to which
Mortgage Loan notice or other indication has been given by the FHA or
the VA challenging its obligation to pay the full amount due on any
insurance or guaranty certificate, or (b) created in connection with an
Eligible P&I Advance with respect to a Mortgage Loan, which Eligible
P&I Advance is reimbursable by an Approved Investor and notice or other
indication has been given by such Approved Investor challenging its
obligation to pay the full amount due in connection with such Mortgage
Loan.
"ELIGIBLE PAID-IN-FULL BUYOUT ADVANCE": an advance made by the
Borrower (which advance has not been repaid or reimbursed to the
Borrower): (a) to repurchase an FHA-insured or VA-guaranteed first
priority Mortgage Loan or first priority Conventional Mortgage Loan
constituting an Eligible Mortgage Loan which has (i) a mortgagor who
has indicated intent to liquidate the Mortgage Loan through a payoff,
(ii) no delinquent payments over 30 days in the past 12 months and
(iii) a confirmed closing date through an authorized closing agent, (b)
during any Negative Security Period (commencing two Business Days after
the first day of such Negative Security Period), in respect of which
the Required Documentation described on ATTACHMENT 2 to the Borrower
Security Agreement has been delivered to the Collateral Agent as
required thereunder, and (c) which is fully reimbursable by the
applicable mortgagor or authorized closing agent.
"ELIGIBLE PAID-IN-FULL BUYOUT ADVANCE RECEIVABLES": on any
date, the aggregate amount receivable by the Borrower from the
applicable mortgagors or authorized closing agents as of such date as
reimbursement of Eligible Paid-in-Full Buyout Advances (such amount not
to exceed the aggregate amount of principal due as of such date under
the Mortgage Loans repurchased with the proceeds of such Eligible
Paid-in-Full Buyout Advances together with interest accruing to but not
including the confirmed closing date for the payoff of each such
Mortgage Loan), other than such receivables (a) that have been included
in the Tranche B Borrowing Base for a period of more than 60 days, or
(b) created in connection with an Eligible Paid-in-Full Buyout Advance
with respect to a Mortgage Loan as to which Mortgage Loan notice or
other indication has been given by the mortgagor thereof or closing
agent challenging its intent to pay the full amount due in connection
with such Mortgage Loan.
"ELIGIBLE SECOND MORTGAGE LOAN": an Eligible Mortgage Loan
that (a)(i) is either FHA-insured or VA-guaranteed, or (ii) fully
conforms to all underwriting and other requirements of an Approved
Investor and has an original principal balance not exceeding $300,000,
(b) is covered by one or more Eligible Take-Out Commitments or covered
by a Hedge Contract, PROVIDED that if such Mortgage Loan is a
Nonconforming Mortgage Loan, such Mortgage Loan must be covered by and
allocated to one or more specific
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Eligible Take-Out Commitments, (c) has not been included in the Tranche
A Borrowing Base for a period of more than 60 days, (d) has a
Loan-to-Value Ratio not greater than 95%, and (e) satisfies the
requirements of clause (ii) of paragraph (b) of the definition of
Eligible Mortgage Loan.
"ELIGIBLE SERVICING PORTFOLIO": Non-Recourse Servicing Rights
(a) for Mortgage Loans which are no more than 90 days delinquent,
whether underlying Mortgage-Backed Securities or held as whole loans,
(b) in respect of which Acknowledgment Agreements (as applicable
thereto pursuant to the definition of Acknowledgment Agreements) are in
full force and effect and have been delivered to the Collateral Agent
and the Administrative Agent, and (c) in respect of which true and
correct copies of the contracts or agreements relating to or from which
such Non-Recourse Servicing Rights arise, together with all amendments,
modifications and supplements thereto, have been delivered to the
Administrative Agent and are in form and substance satisfactory to the
Administrative Agent, if such Non-Recourse Servicing rights are for
Mortgage Loans other than those serviced for or on behalf of an Agency;
PROVIDED that in the case of any Acknowledgement Agreements referred to
in clause (b) above in effect immediately prior to the Closing Date
that the Administrative Agent determines should be re-executed or
confirmed, such Non- Recourse Servicing Rights shall not be deemed to
be ineligible solely by virtue of such requirement so long as such
re-execution or confirmation is accomplished within 30 days after the
Closing Date.
"ELIGIBLE SERVICING RECEIVABLES": collectively, Eligible
Default-Related Advance Receivables, Eligible Early Buyout Advance
Receivables, Eligible Foreclosure Advance Receivables, Eligible P&I
Advance Receivables, Eligible Paid-in- Full Buyout Advance Receivables,
and Eligible T&I Advance Receivables.
"ELIGIBLE TAKE-OUT COMMITMENT": a Take-Out Commitment with
respect to which each of the following statements is true and correct:
(a) the Borrower and the Eligible Mortgage Loans or
Eligible Mortgage-Backed Securities that are the subject of
such Take-Out Commitment are in full compliance therewith; and
(b) such Take-Out Commitment is in full force and
effect and pledged to the Collateral Agent, for the benefit of
the Secured Parties, under the Borrower Security Agreement.
"ELIGIBLE T&I ADVANCE": an advance made by the Borrower (which
advance has not been repaid or reimbursed to the Borrower) of tax and
insurance escrow amounts (a) required to be paid by the Borrower, as
servicer, or, in the case of the BMC Servicing Rights, subservicer,
under a first priority Mortgage Loan as a result of
an increase in the related taxes and/or insurance premiums owing by the
mortgagor, which increased amounts are to be recovered subsequently
from the mortgagor in accordance with the Real Estate Settlement
Procedures Act of 1974, as amended, or (b) required to be, but
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not, paid by the mortgagor under a first priority Mortgage Loan
serviced by the Borrower, which advance is made by the Borrower
pursuant to the Borrower's obligation to do so under a servicing
agreement or, in the case of the BMC Servicing Rights, subservicing
agreement, as the case may be, in respect of Non- Recourse Servicing
Rights and, in the case of each of clauses (a) and (b) above, eligible
for reimbursement by the FHA, the VA, or the applicable Approved
Investor.
"ELIGIBLE T&I ADVANCE RECEIVABLES": on any date, the aggregate
amount receivable by the Borrower from the applicable mortgagor, the
FHA, the VA or the applicable Approved Investor, as the case may be, as
of such date as reimbursement of Eligible T&I Advances (such amount not
to exceed the amount advanced by the Borrower under the related
Eligible T&I Advances), other than such receivables (a) that have been
included in the Tranche B Borrowing Base for a period of more than 18
months (which period shall be extended to 3 years for receivables
relating to Mortgage Loans with respect to which the related mortgagor
is the subject of a bankruptcy proceeding), (b) created in connection
with an Eligible T&I Advance with respect to a Mortgage Loan as to
which Mortgage Loan notice or other indication has been given by the
FHA or the VA challenging its obligation to pay the full amount due on
any insurance or guaranty certificate, or (c) created in connection
with an Eligible T&I Advance with respect to a Mortgage Loan, which
Eligible T&I Advance is reimbursable by an Approved Investor and notice
or other indication has been given by such Approved Investor
challenging its obligation to pay the full amount due in connection
with such Mortgage Loan.
"ELIGIBLE WET LOANS": the collective reference to Eligible Wet
First Loans and Eligible Wet Second Loans.
"ELIGIBLE WET FIRST LOAN": an Eligible First Mortgage Loan of
the type described in the proviso to clause (i) of paragraph (p) of the
definition of Eligible Mortgage Loan.
"ELIGIBLE WET SECOND LOAN": an Eligible Second Mortgage Loan
of the type described in the proviso to clause (i) of paragraph (p) of
the definition of Eligible Mortgage Loan.
"FHA": the United States Federal Housing Administration and
any successor thereto.
"FHLMC ACKNOWLEDGMENT AGREEMENT": an agreement pursuant to
which FHLMC acknowledges the Lien of the Collateral Agent, on behalf of
the Secured Parties, on Non-Recourse Servicing Rights relating to
Mortgage Loans sold to or securitized through FHLMC, in form and
substance as is customarily provided by FHLMC in agreements of its kind
on its date of execution (or any successor agreement thereto) and
acceptable to the Administrative Agent.
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"FHLMC GUIDE": the "Sellers' & Servicers' Guide" published by
FHLMC, as amended, modified or supplemented from time to time.
"FHLMC MORTGAGE-BACKED SECURITIES": any security (including a
participation certificate) issued by FHLMC that represents an interest
in a pool of Mortgage Loans.
"FNMA ACKNOWLEDGMENT AGREEMENT": an agreement pursuant to
which FNMA acknowledges the Lien of the Collateral Agent, on behalf of
the Secured Parties, on Non-Recourse Servicing Rights relating to
Mortgage Loans sold to or securitized through FNMA, in form and
substance as is customarily provided by FNMA in agreements of its kind
on its date of execution (or any successor agreement thereto) and
acceptable to the Administrative Agent.
"FNMA GUIDE": collectively, the "Selling Guide" and the
"Servicing Guide" published by FNMA, as amended, modified or
supplemented from time to time.
"FNMA MORTGAGE-BACKED SECURITIES": any security (including a
participation certificate) issued by FNMA that represents an interest
in a pool of Mortgage Loans.
"GNMA ACKNOWLEDGMENT AGREEMENT": at all times subsequent to
the date hereof that GNMA enters into such agreements and such
agreement is available to the Borrower and in a form acceptable to the
Administrative Agent, an agreement pursuant to which GNMA acknowledges
the Lien of the Collateral Agent, on behalf of the Secured Parties, on
Non-Recourse Servicing Rights relating to Mortgage Loans securitized
through GNMA.
"GNMA GUIDE": collectively, the "GNMA I Mortgage-Backed
Securities Guide" and the "GNMA II Mortgage-Backed Securities Guide"
published by the Department of Housing and Urban Development, as
amended, modified or supplemented from time to time.
"GNMA MORTGAGE-BACKED SECURITIES": any security (including a
participation certificate) guaranteed by GNMA that represents an
interest in a pool of Mortgage Loans.
"HEDGE CONTRACT": in respect of any Mortgage Loans,
Mortgage-Backed Securities or servicing rights for Mortgage Loans, a
contract to buy or sell an instrument on the futures market, cash
forward market, private investor whole-loan market or options market,
or an option or financial future purchased over the counter for future
delivery of such instrument, in respect of interest rate risks
associated with such Mortgage Loans, Mortgage-Backed Securities and
servicing rights.
"LOAN-TO-VALUE RATIO": for any Mortgage Loan, the percentage
represented by the sum of the initial principal amount of the first
and, if applicable, second priority Mortgage Loans outstanding in
respect of the Property encumbered thereby at the origination thereof
in relation to the lesser of (a) the appraised value of the Property
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encumbered thereby (as set forth in the appraisal, if any, delivered in
connection with the origination of such Mortgage Loan) and (b) the most
recent value assigned to such Property pursuant to the requirements of
the applicable Approved Investor.
"MORTGAGE LOAN": a one- to four-family residential real
estate-secured loan.
"MORTGAGE-BACKED SECURITIES": the collective reference to
FHLMC Mortgage- Backed Securities, FNMA Mortgage-Backed Securities and
GNMA Mortgage-Backed Securities.
"NONCONFORMING MORTGAGE LOAN": an Eligible First Mortgage Loan
or an Eligible Second Mortgage Loan that fully conforms to all
underwriting and other requirements of an Approved Investor other than
FNMA, FHLMC or GNMA.
"NON-RECOURSE SERVICING RIGHTS": Direct Servicing Rights owned
by the Borrower or, in respect of the BMC Servicing Rights, BMC,
relating to Mortgage Loans in respect of which the Borrower, as
servicer or, in the case of the BMC Servicing Rights, subservicer,
bears no general risk of payment default by the mortgagor thereunder,
PROVIDED that (i) servicing rights owned by the Borrower or, in the
case of the BMC Servicing Rights, BMC relating to Mortgage Loans
guaranteed by the VA shall constitute Non-Recourse Servicing Rights
notwithstanding the classification of such Mortgage Loans as "No Bids"
by the VA, and (ii) servicing rights owned by the Borrower or, in the
case of the BMC Servicing Rights, BMC, which would otherwise not
constitute Non-Recourse Servicing Rights shall constitute Non-Recourse
Servicing Rights to the extent that the Borrower, as servicer or
subservicer, in the case of the BMC Servicing Rights, is fully
indemnified by The First National Bank of Boston or Barnett against the
risk of payment default by the mortgagors under the related Mortgage
Loans in accordance with indemnification agreements in form and
substance satisfactory to the Administrative Agent.
"OBLIGOR": the Person or Persons obligated to pay the
indebtedness that is the subject of a Mortgage Loan or Mortgage-Backed
Security, including any guarantor of such indebtedness.
"PERFECTED ASSIGNMENT": with respect to any Book-Entry
Mortgage-Backed Security, such Book-Entry Mortgage-Backed Security has
been transferred to the Collateral Agent or any entity designated by
the Collateral Agent so that the Collateral Agent or such entity may
maintain such Book-Entry Mortgage-Backed Security as depositary in one
of its book-entry accounts with a Federal Reserve Bank or the
Participants Trust Company and a pledge to the Collateral Agent for the
benefit of the Secured Parties has been registered with the Collateral
Agent or such entity, or the Borrower has taken such other actions as
the Administrative Agent or the Collateral Agent may reasonably request
to perfect, protect and maintain the valid, perfected and first
priority security interest of the Collateral Agent, for the benefit of
the Secured Parties, in such Book-Entry Mortgage-Backed Security.
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"PROPERTY": the real property, including the improvements
thereon, and the personal property (tangible and intangible) that are
encumbered pursuant to a Mortgage Loan.
"REQUIRED DOCUMENTATION": in respect of any Mortgage Loan,
Mortgage-Backed Security or Eligible Servicing Receivable, the set of
instruments and documents applicable thereto described in the
applicable Security Agreement that is required to be delivered to the
Collateral Agent thereunder in connection with such Mortgage Loan,
Mortgage-Backed Security or Eligible Servicing Receivable, and such
other documents related thereto as the Collateral Agent or the
Administrative Agent may from time to time reasonably require.
"SECURED PARTIES": as defined in Section 1 of the each of the
Security Agreements.
"SERVICING ADVANCE PORTION": that portion of the Tranche B
Borrowing Base, determined under subsection 4.2, attributable to
clauses (a) through (f) of subsection 4.2.
"SERVICING PORTFOLIO PORTION": that portion of the Tranche B
Borrowing Base, determined under subsection 4.2, attributable to clause
(g) of subsection 4.2.
"TAKE-OUT COMMITMENT": with respect to any Eligible Mortgage
Loan or Eligible Mortgage-Backed Security included in the Tranche A
Borrowing Base, one or more BONA FIDE current, unfilled and unexpired
commitments of an Approved Investor, issued in favor of and owned by
the Borrower, under which such Approved Investor agrees to purchase, at
a specified price, an aggregate amount and type of (i) Mortgage Loans
which includes such Eligible Mortgage Loan or (ii) Mortgage-Backed
Securities which includes such Eligible Mortgage-Backed Securities.
"VA": the United States Veteran's Administration and any
successor thereto.
4.4 WAIVER OF REQUIREMENTS; MARK-TO-MARKET. Notwithstanding
the provisions of subsections 4.1, 4.2 and 4.3, (a) the Administrative Agent is
hereby authorized by the Lenders to grant waivers, in its sole discretion, of
any of the requirements for eligibility regarding qualification of Mortgage
Loans, Mortgage-Backed Securities, Eligible Servicing Receivables and/or
Non-Recourse Servicing Rights for inclusion in either Tranche A Borrowing Base
or either Tranche B Borrowing Base, as applicable, PROVIDED that, at any time,
the aggregate value (as determined in accordance with this Section 4) of all
such Mortgage Loans, Mortgage-Backed Securities, Eligible Servicing Receivables
and/or Non-Recourse Servicing Rights accepted by the Administrative Agent as
eligible for inclusion in such Tranche A Borrowing Base or such Tranche B
Borrowing Base, as applicable, pursuant to such waivers shall not exceed
$50,000,000 in the aggregate, and (b) if a Default or Event of Default has
occurred and is continuing, the value of each Eligible Mortgage Loan or Eligible
Mortgage-Backed Security shall be equal to the applicable advance rate as set
forth in the applicable provision of subsection 4.1 multiplied by the product of
(i) the market price for 30-day mandatory future delivery of such Eligible
Mortgage Loan or Eligible Mortgage-Backed Security quoted by Telerate or, if not
so quoted, the average
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bid price quoted in writing to the Administrative Agent as of the computation
date in respect thereof by any two nationally recognized dealers reasonably
selected by the Administrative Agent who, at such time, are making a market in
similar Mortgage Loans or Mortgage-Backed Securities, as the case may be,
multiplied by (ii) the unpaid principal amount or face amount, respectively,
thereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into this Agreement and to make the Loans, each Borrower hereby represents and
warrants to the Administrative Agent and each Lender that:
5.1 FINANCIAL CONDITION. (a) The consolidated balance sheet of
HomeSide and its consolidated Subsidiaries as at December 31, 1995, and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by Coopers & Lybrand, LLP, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of HomeSide and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. The
consolidated balance sheet of HomeSide and its consolidated Subsidiaries as at
March 15, 1996 and November 30, 1996, and the related consolidated statements of
income and of cash flows for the periods ended on such dates, certified by
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated financial
condition of HomeSide and its consolidated Subsidiaries as at such dates, and
the consolidated results of their operations and their consolidated cash flows
for the periods then ended (subject to normal year-end adjustments). All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or Responsible Officer,
as the case may be, and as disclosed therein). Except for those items set forth
on Schedule 5.1, neither HomeSide nor any of its consolidated Subsidiaries had,
at the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, material contingent liability or material liability for
taxes, or any material long-term lease or material unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, which is not reflected in the foregoing statements
or in the notes thereto. During the period from December 31, 1995 to and
including the date hereof there has been no sale, transfer or other disposition
by HomeSide or any of its consolidated Subsidiaries of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of HomeSide and its consolidated
Subsidiaries at December 31, 1995, other than pursuant to and in accordance with
the BBMC Stock Purchase Agreement as in effect on the BBMC Closing Date and the
BMC Stock Purchase Agreement as in effect on the BMC Closing Date.
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(b) The consolidated balance sheet of BMC and its consolidated
Subsidiaries as at December 31, 1995, and the related consolidated statements of
income and of cash flows for the fiscal year ended on such date, reported on by
Arthur Andersen LLP, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated financial
condition of BMC and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. The consolidated balance sheets of BMC and its
consolidated Subsidiaries as at March 31, 1996 and November 30, 1996, and the
related consolidated statements of income and of cash flows for the periods
ended, certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of BMC and its consolidated Subsidiaries as at
such dates, and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject to normal year-end
adjustments). All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). Except for
those items set forth on Schedule 5.1, neither BMC nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material Guarantee Obligation, material contingent liability or
material liability for taxes, or any material long-term lease or material
unusual forward or material long-term commitment, including, without limitation,
any interest rate or foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto. During the period
from December 31, 1995 to and including the date hereof there has been no sale,
transfer or other disposition by BMC or any of its consolidated Subsidiaries of
any material part of its business or property and no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial condition of
BMC and its consolidated Subsidiaries at December 31, 1995, other than pursuant
to and in accordance with the BBMC Stock Purchase Agreement as in effect on the
BBMC Closing Date and the BMC Stock Purchase Agreement as in effect on the BMC
Closing Date.
(c) The consolidated balance sheet of Holdings and its
Subsidiaries as at March 14, 1996, reported on by Arthur Andersen LLP, a copy of
which has heretofore been furnished to each Lender, is complete and correct and
presents fairly the consolidated financial condition of Holdings as at such
date. The consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at November 30, 1996, and the related consolidated statements of
income and of cash flows for the period then ended, certified by Responsible
Officer, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly the consolidated financial condition of
Holdings and its consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for the period
then ended (subject to normal year-end adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants or Responsible Officer, as the
case may be, and as disclosed therein). Except for those items set forth on
Schedule 5.1, neither Holdings nor any of its consolidated Subsidiaries had, at
the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, material
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contingent liability or material liability for taxes, or any material long-term
lease or material unusual forward or material long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the foregoing statements or in the notes
thereto. During the period from March 14, 1996 to and including the date hereof
there has been no sale, transfer or other disposition by Holdings or any of its
consolidated Subsidiaries of any material part of its business or property and
no purchase or other acquisition of any business or property (including any
capital stock of any other Person) material in relation to the consolidated
financial condition of Holdings and its consolidated Subsidiaries at March 14,
1996, other than pursuant to and in accordance with the BBMC Stock Purchase
Agreement as in effect on the BBMC Closing Date and the BMC Stock Purchase
Agreement as in effect on the BMC Closing Date and other than the agreement
entered into prior to the date hereof by HonoMo to dispose of all of the assets
of HonoMo.
5.2 NO CHANGE. (a) Since December 31, 1995 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) except for the transactions effected pursuant
to the BBMC Stock Purchase Agreement and the BMC Stock Purchase Agreement,
during the period from December 31, 1995 to and including the date of this
Agreement no dividends or other distributions have been declared, paid or made
upon the Capital Stock of HomeSide nor has any of the Capital Stock of HomeSide
been redeemed, retired, purchased or otherwise acquired for value by HomeSide or
any of its Subsidiaries.
5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of Holdings
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except to the extent that the failure to be so
qualified or in good standing could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect, (d) in the case of BMC, such
Borrower and, to the extent necessary or desirable in the normal conduct of its
business, each Subsidiary, has valid current status and eligibility in good
standing under the regulations of the Agencies as an approved seller/servicer,
issuer/servicer or lender, as the case may be (including as a FNMA and FHLMC
approved Seller/Servicer, a GNMA approved Issuer/Servicer, a HUD Direct
Endorsement Lender, a VA approved lender and an FHA approved lender), (e) has
any other valid and current classification under the regulations of each of the
Agencies necessary or desirable in the normal conduct of its business and (f) is
in compliance with all Requirements of Law except to the extent that the failure
to comply therewith could not, in the aggregate, reasonably be expected to have
a Material Adverse Effect.
5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Loan Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and, in the
case of such Borrower, to borrow hereunder and has taken all necessary corporate
action to authorize the borrowings on the terms and conditions of this
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Agreement and any Notes and to authorize the execution, delivery and performance
of the Loan Documents to which it is a party. No consent or authorization of,
filing with, notice to or other act by or in respect of any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which such Loan Party is a party, except
as set forth on Schedule 5.4, all of which have been duly accomplished and are
valid and in full force and effect. Each Loan Document has been, and each other
Loan Document will be, duly executed and delivered on behalf of each Loan Party
that is a party thereto. This Agreement constitutes, and each other Loan
Document when executed and delivered by each Loan Party that is a party thereto
will constitute, a legal, valid and binding obligation of such Loan Party
enforceable against such Loan Party in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
5.5 NO LEGAL BAR. The execution, delivery and performance of
the Loan Documents, the borrowings hereunder and the use of the proceeds thereof
will not violate any Requirement of Law or Contractual Obligation (subject to
the receipt of any required consents under certain servicing contracts) of
Holdings or of any of its Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of its or their respective properties
or revenues pursuant to any such Requirement of Law or Contractual Obligation.
5.6 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of such Borrower, threatened by or against Holdings or any of
its Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) except as set forth on
Schedule 5.6, which could reasonably be expected to have a Material Adverse
Effect.
5.7 NO DEFAULT. Neither Holdings nor any of its Subsidiaries
is in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
5.8 OWNERSHIP OF PROPERTY; LIENS. Each of Holdings and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of such property is
subject to any Lien except as permitted by subsection 8.3.
5.9 INTELLECTUAL PROPERTY. Holdings and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such
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Intellectual Property, nor does such Borrower know of any valid basis for any
such claim. The use of such Intellectual Property by Holdings and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
5.10 TAXES. Each of Holdings and its Subsidiaries has filed or
caused to be filed all tax returns which, to the knowledge of such Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Holdings or its Subsidiaries, as the case may be); and no tax Lien has
been filed, and, to the knowledge of such Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
5.11 FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or Regulation
U of the Board as now and from time to time hereafter in effect. If requested by
any Lender or the Administrative Agent, HomeSide will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
5.12 ERISA. Neither a Reportable Event that reasonably could
result in the termination of a Plan (other than a standard termination) or which
could have a Material Adverse Effect nor an "accumulated funding deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Single Employer Plan,
and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single Employer Plan has
occurred, (other than a standard termination) and no Lien in favor of the PBGC
or a Plan has arisen, during such five-year period. The present value of all
accrued benefits under each Single Employer Plan (based on those assumptions
used to fund such Plans) did not, as of the last annual valuation date prior to
the date on which this representation is made or deemed made, exceed the value
of the assets of such Plan allocable to such accrued benefits. Neither such
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan, and neither such Borrower nor any
Commonly Controlled Entity would become subject to any liability under ERISA if
such Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent.
5.13 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Such Borrower
is not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
Such Borrower is not subject to
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regulation under any Federal or State statute or regulation (other than
Regulation X of the Board) which limits its ability to incur the Loans.
5.14 SUBSIDIARIES. The Subsidiaries listed on Schedule 5.14
constitute all the Subsidiaries of Holdings at the date hereof.
5.15 PURPOSE OF LOANS. The proceeds of the Loans shall be used
by such Borrower (a) to finance the repayment of indebtedness of such Borrower
under the Existing Credit Agreement and (b) to finance the ongoing operations of
such Borrower, including the origination, acquisition and servicing of
residential mortgage loans, and other working capital and general corporate
needs of such Borrower, including making Restricted Payments permitted by
subsection 8.9.
5.16 ENVIRONMENTAL MATTERS. Except to the extent that all of
the following, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(a) The facilities and properties owned, leased or operated by
Holdings or any of its Subsidiaries (the "PREMISES") do not contain,
and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations which (i) constitute or
constituted a violation of, or (ii) could reasonably be expected to
give rise to liability under, any Environmental Law.
(b) The Premises and all operations at the Premises are in
compliance, and have in the last five years been in compliance, in all
material respects with all applicable Environmental Laws, and there is
no contamination at, under or about the Premises or violation of any
Environmental Law with respect to the Premises or the business operated
by Holdings or any of its Subsidiaries (the "BUSINESS") which could
interfere with the continued operation of the Premises.
(c) Neither Holdings nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Premises or the
Business, nor does such Borrower have knowledge or reason to believe
that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Premises in violation of, or in a
manner or to a location which could reasonably be expected to give rise
to liability under, any Environmental Law, nor have any Materials of
Environmental Concern been generated, treated, stored or disposed of
at, on or under any of the Premises in violation of, or in a manner
that could reasonably be expected to give rise to liability under, any
applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of such Borrower, threatened,
under any Environmental Law to which Holdings or any Subsidiary is or
will be named as a party with respect to the
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Premises or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Premises or the Business.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Premises, or arising
from or related to the operations of Holdings or any Subsidiary in
connection with the Premises or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could
reasonably give rise to liability under Environmental Laws.
5.17 CAPITALIZATION. Schedule 5.17 sets forth, as of the date
hereof, the number of authorized, issued and outstanding shares of each class of
Capital Stock of Holdings, the names and record owners of such shares (other
than management shareholders, whose shares are set forth therein in aggregate
opposite "Management"), the number of shares owned of record by each of such
owners, and the amount of the equity investment evidenced thereby on the Closing
Date. All of such shares are fully paid and duly and validly issued and
outstanding. Except as described on Schedule 5.17, there are no outstanding
subscriptions, options, warrants, calls, rights (including preemptive rights) or
any other agreements or commitments of any nature with respect to the Capital
Stock of Holdings or any of its Subsidiaries.
5.18 DISCLOSURE. The statements and information contained
herein, in any other Loan Document and in any of the information provided to the
Administrative Agent or the Lenders in writing (other than financial
projections) in connection with this Agreement, taken as a whole, do not contain
any untrue statement of any material fact, or omit to state a fact necessary in
order to make such statements or information not misleading in any material
respect, in each case in light of the circumstances under which such statements
were made or information provided as of the date so provided and subject to any
information subsequently provided in writing which amends, modifies or corrects
the information previously furnished. The financial projections contained in
Holdings' Updated Business Plan as of January 1997, furnished to the Lenders in
connection with this Agreement, have been prepared in good faith based upon
assumptions which were reasonable when such projections were made, it being
acknowledged that such projections are subject to the uncertainty inherent in
all projections of future results and that there can be no assurance that the
results set forth in such projections will in fact be realized. There is no fact
known to such Borrower, other than economic conditions generally, including
interest rate risk, that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein, in the other Loan Documents
or in such other documents, certificates and written statements furnished to the
Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
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SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO INITIAL LOANS. The agreement of each Lender
to make or purchase the initial Loan requested to be made or purchased by it is
subject to the satisfaction, immediately prior to or concurrently with the
making of such Loan on the Closing Date, of the following conditions precedent:
(a) LOAN DOCUMENTS. The Administrative Agent shall have
received (i) this Agreement, executed and delivered by a duly
authorized officer of each Borrower, with a counterpart for each
Lender, (ii) each Security Agreement, executed and delivered by a duly
authorized officer of each party thereto, with a counterpart or a
conformed copy for each Lender, (iii) each Pledge Agreement, executed
and delivered by a duly authorized officer of each party thereto, with
a counterpart or a conformed copy for each Lender, accompanied by all
stock certificates and related undated stock powers, executed in blank,
in respect of all Pledged Stock thereunder and (iv) each Guarantee,
executed and delivered by a duly authorized officer of each Guarantor
party thereto, with a counterpart or a conformed copy for each Lender.
(b) RELATED AGREEMENTS. The Administrative Agent shall have
received, with a copy for each Lender, true and correct copies,
certified as to authenticity by HomeSide, of (i) the Holdings Notes and
related documents and (ii) the Second Lien Pledge Agreements, executed
and delivered by Holdings and BMC, respectively, and such other
documents or instruments as may be reasonably requested by the
Administrative Agent.
(c) REPAYMENT OF EXISTING INDEBTEDNESS. The Administrative
Agent shall have received evidence satisfactory to it that,
simultaneously with the making of the initial Loans on the Closing
Date, each Borrower will have repaid in full its existing Indebtedness
under the Existing Credit Agreement.
(d) CLOSING CERTIFICATE. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each
Borrower, dated the Closing Date, substantially in the form of Exhibit
G, with appropriate insertions and attachments, satisfactory in form
and substance to the Administrative Agent, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of such
Borrower.
(e) FEES. The Administrative Agent shall have received the
fees to be received on the Closing Date referred to in subsection 3.2.
(f) LEGAL OPINIONS. The Administrative Agent shall have
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of Bingham, Dana
& Gould, LLP, counsel to HomeSide and the other Loan Parties,
substantially in the form of Exhibit H-1;
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(ii) the executed legal opinion of Hutchins,
Wheeler & Dittmar, a Professional Corporation, counsel to
Holdings, substantially in the form of Exhibit H-2;
(iii) the executed legal opinion of Robert
Jacobs, Esq., general counsel of HomeSide, substantially in
the form of Exhibit H-3;
(iv) the executed legal opinion of Holland &
Knight, special Florida counsel to the Borrowers,
substantially in the form of Exhibit H-4; and
(v) the executed legal opinion of special
Hawaii counsel to the Administrative Agent, substantially in
the form of Exhibit H-5.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(g) ACTIONS IN RESPECT OF COLLATERAL. The Administrative Agent
shall have received:
(i) evidence in form and substance
satisfactory to the Administrative Agent that all filings,
recordings, registrations and other actions, including,
without limitation, the duly executed UCC financing
statements, necessary or, in the opinion of the Administrative
Agent, desirable to perfect the Liens created by the Security
Documents shall have been delivered to the Administrative
Agent to be held by it for filing in the event of the
occurrence of a Negative Security Event;
(ii) evidence satisfactory to the
Administrative Agent that all collateral accounts, settlement
accounts and custody accounts required to be established
pursuant to each of the Security Agreements have been
established; and
(iii) a duly executed copy of an Acknowledgment
Agreement with each relevant Agency (other than GNMA) or
Approved Investors covering all servicing rights included in
the Eligible Servicing Portfolio (subject to the proviso set
forth in the definition thereof).
6.2 CONDITIONS TO EACH LOAN. The agreement of each Lender to
make or purchase any Loan requested to be made or purchased by it on any
Borrowing Date (including, without limitation, its initial Loan) is subject to
the satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. (i) In the case of any
Loans other than Loans constituting a Refunding Borrowing, each of the
representations and warranties made by either Borrower herein or in the
Borrowing Base Certificate relating to such Loans shall be true and
correct in all material respects on and as of such Borrowing
Date as if made on and as of such date and (ii) in the case of any
Loans constituting a Refunding Borrowing, each of the representations
and warranties made by either
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Borrower in subsections 5.3, 5.4, 5.5, 5.11, 5.13 and 5.15 and in the
Borrowing Base Certificate relating to such Loans shall be true and
correct in all material respects on and as of such Borrowing Date as if
made on and as of such date.
(b) NO DEFAULT. (i) In the case of Loans constituting a
Refunding Borrowing, no Event of Default shall have occurred and be
continuing on such Borrowing Date or after giving effect to the Loans
to be made on such Borrowing Date and the application of the proceeds
thereof and (ii) in the case of any other Loans, no Default or Event of
Default shall have occurred and be continuing on such Borrowing Date or
after giving effect to the Loans requested to be made on such Borrowing
Date and the application of the proceeds thereof.
(c) BORROWING BASE CERTIFICATE; BORROWING BASE AND OTHER
LIMITATIONS. In the case of a borrowing of Tranche A Loans, Tranche A
CAF Advances or Tranche A Swing Line Loans, the Administrative Agent
shall have received a Tranche A Borrowing Base Certificate for the
applicable Borrower, dated as of the close of business on the Business
Day immediately preceding such Borrowing Date or as of such Borrowing
Date, duly completed by the Collateral Agent in the manner required by
the Security Agreements. In the case of a borrowing of Tranche B Loans,
Tranche B CAF Advances or Tranche B Swing Line Loans, the
Administrative Agent shall have received a Tranche B Borrowing Base
Certificate for the applicable Borrower, dated as of the close of
business on the Business Day immediately preceding such Borrowing Date
or as of such Borrowing Date, duly completed by the Collateral Agent in
the manner required by the Security Agreements. In the case of each
Loan, the Administrative Agent shall have determined, based upon the
Tranche A Borrowing Base Certificate and/or Tranche B Borrowing Base
Certificate delivered in respect thereof that, after giving effect to
such Loan and the simultaneous application by the Administrative Agent
of the proceeds thereof, the limitations of subsections 2.1 and 2.2, as
applicable, will not be contravened.
(d) ADDITIONAL MATTERS. All corporate and other proceedings
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the other Loan
Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it
shall reasonably request.
Each borrowing by each Borrower hereunder shall constitute a representation and
warranty by both Borrowers as of the date thereof that the conditions contained
in this subsection have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
HomeSide hereby agrees that, so long as the Commitments remain
in effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan
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Document, HomeSide shall and (except in the case of delivery of financial
information, reports and notices) shall cause each of its Subsidiaries to:
7.1 Financial Statements. Furnish to each Lender:
--------------------
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of HomeSide or Holdings, as the case
may be, a copy of the consolidated balance sheet of HomeSide and its
consolidated Subsidiaries, and of Holdings and its consolidated
Subsidiaries, as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by Arthur Andersen LLP or other independent certified
public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each
fiscal year of HomeSide or Holdings, as the case may be, the unaudited
consolidated balance sheet of HomeSide and its consolidated
Subsidiaries, and of Holdings and its consolidated Subsidiaries, as at
the end of such quarter and the related unaudited consolidated
statements of income and retained earnings and of cash flows of
HomeSide and its consolidated Subsidiaries, and of Holdings and its
consolidated Subsidiaries, for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each case
in comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
7.2 Certificates; Other Information. Furnish to each Lender:
-------------------------------
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a certificate of a
Responsible Officer stating that, to the best of such Responsible
Officer's knowledge, during such period (i) no Subsidiary has been
formed or acquired (or, if any such Subsidiary has been formed or
acquired, HomeSide has complied with the requirements of subsection
7.11 with respect thereto), (ii) neither BMC nor any of its
Subsidiaries has changed its name, its principal place of business, its
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chief executive office or the location of any material item of tangible
Collateral without complying with the requirements of this Agreement
and the Security Documents with respect thereto and (iii) each Borrower
and each other Loan Party has observed or performed all of its
covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, and containing calculations in
reasonable detail demonstrating compliance with the provisions of
subsections 8.1, 8.2, 8.6, 8.8, 8.9, 8.10 and 8.11;
(c) not later than the end of each fiscal year of HomeSide, a
copy of the projections by HomeSide of the operating budget and cash
flow budget of HomeSide and its Subsidiaries for the succeeding fiscal
year, such projections to be accompanied by a certificate of a
Responsible Officer to the effect that such projections have been
prepared on the basis of sound financial planning practice and that
such Responsible Officer has no reason to believe they are incorrect or
misleading in any material respect;
(d) within five days after the same are sent, copies of all
financial statements and reports which Holdings or HomeSide may make
to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority;
(e) within three Business Days after the end of each calendar
month (in addition to the other dates required by the provisions of
this Agreement), the Tranche A Borrowing Base Certificate and Tranche B
Borrowing Base Certificate for each of HomeSide and HonoMo, delivered
by the Collateral Agent in respect of the last day of such month,
accompanied by a certificate of a Responsible Officer of each Borrower
certifying to the effect that the same are true and correct;
(f) concurrently with the delivery of any audits or similar
report by any Agency, copies of the same;
(g) not later than 30 days after the end of each fiscal
quarter of HomeSide, an origination report, in form and substance
satisfactory to the Administrative Agent;
(h) (i) not later than 30 days after the end of each fiscal
quarter of HomeSide, or, upon the request of the Administrative Agent,
as soon as practicable after such request, an Appraisal of the total
servicing portfolio of BMC and its Subsidiaries, including an Appraisal
of the Eligible Servicing Portfolio, together with a report by
HomeSide, in form and substance satisfactory to the Administrative
Agent, containing a break-down by investor and interest rate, and
containing a break-down of delinquencies by state and product, and (ii)
not later than 15 days after the end of each calendar month, a
certificate showing adjusted Appraised Value as at the end of such
month as described in clause (ii) of the definition thereof, certified
by a Responsible Officer of each Borrower and including, in detail
satisfactory to the Administrative Agent, the calculation and basis for
such determination;
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(i) not later than 30 days after the end of each fiscal
quarter of HomeSide, a report by HomeSide, in form and substance
satisfactory to the Administrative Agent, specifying nonaccrual loans
and other real estate owned; and
(j) (i) within three Business Days after the end of each
calendar week, a report, in form and substance satisfactory to the
Administrative Agent, setting forth the weighted average net purchase
price of all Take-Out Commitments covering Eligible Mortgage Loans or
Eligible Mortgage-Backed Securities, and (ii) within three Business
Days after the end of each calendar month, a report, in form and
substance satisfactory to the Administrative Agent, setting forth the
weighted average net purchase price of all Take-Out Commitments
covering Eligible Mortgage Loans or Eligible Mortgage- Backed
Securities, PROVIDED that the reports described in clause (i) above
shall be required to be delivered only to the Administrative Agent; and
(k) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of HomeSide or its Subsidiaries, as the case may be.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. (a)
Continue to engage in businesses in which HomeSide and its Subsidiaries are
engaged on the date of this Agreement and such other businesses generally
related to residential mortgage banking as HomeSide and its Subsidiaries may
enter into in accordance with subsection 8.15, and, except as permitted under
subsection 8.4, preserve, renew and keep in full force and effect its corporate
existence and take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business; (b)
preserve and maintain its and BMC's and such Subsidiary's status and eligibility
as an approved seller and servicer, as applicable; (c) preserve and maintain any
other classification under the regulations of each of the Agencies necessary or
desirable in the normal conduct of BMC's, HomeSide's or such Subsidiary's
businesses; and (d) comply with all Contractual Obligations and Requirements of
Law except to the extent that failure to comply therewith could not, in the
aggregate, be reasonably expected to have a Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY; INSURANCE; RISK MANAGEMENT. Keep
all property useful and necessary in its business in good working order and
condition; maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks (but including in any event public liability, product liability and
business interruption) as are usually insured against in the same general area
by companies engaged in the same or a similar business; furnish to each Lender,
upon written request, full information as to the insurance carried; and maintain
a risk management policy with respect to its portfolio of mortgage loans and
servicing rights designed to reduce fluctuations in the value of its servicing
portfolio due to interest rate movements.
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7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of HomeSide and its
Subsidiaries with officers and employees of HomeSide and its Subsidiaries and
with its independent certified public accountants, PROVIDED that such visits by
Lenders shall be coordinated through the Administrative Agent and, when no Event
of Default has occurred and is continuing, shall be arranged upon reasonable
prior notice during normal working hours and with reasonable efforts to minimize
disruption of the normal conduct of business of HomeSide and its Subsidiaries.
7.7 NOTICES. Promptly give notice to the Administrative Agent
and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of BMC or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between BMC or
any of its Subsidiaries and any Governmental Authority, which in either
case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting BMC or any of its
Subsidiaries in which the amount involved is $1,000,000 or more and not
covered by insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and in any event
within 30 days after HomeSide knows or has reason to know thereof: (i)
the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or HomeSide or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of,
any Plan (other than a standard termination); and
(e) any change in the business, operations, property,
condition (financial or otherwise) of BMC and its Subsidiaries taken as
a whole that has had or has a reasonable likelihood of having a
Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action HomeSide proposes to take with respect thereto.
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7.8 ENVIRONMENTAL LAWS. (a) Comply with, and ensure compliance
by all tenants and subtenants, if any, with, all applicable Environmental Laws
and obtain and comply in all material respects with and maintain, and ensure
that all tenants and subtenants obtain and comply in all material respects with
and maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so could not be reasonably expected to have a Material Adverse
Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not be
reasonably expected to have a Material Adverse Effect.
(c) Defend, indemnify and hold harmless the Administrative
Agent and the Lenders, and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any Environmental Laws
applicable to the operations of HomeSide or the Premises, or any orders,
requirements or demands of Governmental Authorities related thereto, including,
without limitation, attorney's and consultant's fees, investigation and
laboratory fees, response costs, court costs and litigation expenses, except to
the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor.
Notwithstanding anything in this Agreement to the contrary, this indemnity shall
continue in full force and effect regardless of the termination of this
Agreement.
7.9 FURTHER ASSURANCES. Upon the request of the Administrative
Agent, promptly perform or cause to be performed any and all acts and execute or
cause to be executed any and all documents (including, without limitation,
financing statements and continuation statements) for filing under the
provisions of the Uniform Commercial Code or any other Requirement of Law which
are necessary or advisable to maintain in favor of the Administrative Agent or
Collateral Agent, as applicable, for the benefit of the Lenders, Liens on the
Collateral that are duly perfected in accordance with all applicable
Requirements of Law (to the extent such Liens are required to be perfected
pursuant to the terms hereof).
7.10 SECURITY EVENTS. (a) If a Negative Security Event occurs
during a Positive Security Period, as promptly as practicable after the
occurrence of such Negative Security Event, and in any event on or before the
Security Perfection Date in respect thereof, take or cause to be taken the
following actions:
(i) take all actions required (including, where
required, physical delivery to the Collateral Agent of Mortgage-Backed
Securities and Required Documentation in respect of Eligible Mortgage
Loans, filing of UCC financing statements and execution
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and delivery of Acknowledgment Agreements, to the extent such actions
have not already been taken) to cause Collateral to be Delivered under
the Security Agreements;
(ii) deliver to the Administrative Agent, with a
counterpart for each Lender, executed legal opinions of such counsel to
HomeSide and its Subsidiaries as shall be reasonably acceptable to the
Administrative Agent confirming, as of a date not more than thirty days
prior to such Security Perfection Date, the opinions rendered on the
Closing Date by such respective counsel in respect of the creation,
perfection and priority of the Collateral Agent's security interest in
the Collateral, with such changes therein as the Administrative Agent
shall reasonably approve or reasonably request;
and thereafter from time to time promptly take or cause to be taken all such
further actions as shall be requested by the Collateral Agent in order to ensure
that the provisions of the Security Agreements are satisfied and the
representations and warranties therein with respect to the Collateral are true
and correct.
7.11 ADDITIONAL COLLATERAL. (a) With respect to any assets
acquired after the Closing Date by BMC or any of its Subsidiaries that are
intended to be subject to the Lien created by any of the Security Documents but
which are not so subject, at any time other than during the a Positive Security
Period, promptly (and in any event within 30 days after the acquisition
thereof): (i) execute and deliver to the Administrative Agent such amendments to
the relevant Security Documents or such other documents as the Administrative
Agent shall deem necessary or advisable to grant to the Administrative Agent,
for the benefit of the Secured Parties, a Lien on such assets, (ii) take all
actions necessary or advisable to cause such Lien to be duly perfected in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may be
requested by the Administrative Agent, and (iii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) and (ii) immediately preceding,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary, promptly upon the request of the Administrative
Agent: (i) cause such new Subsidiary to become a party to the Subsidiary
Guarantee pursuant to documentation which is in form and substance satisfactory
to the Administrative Agent, (ii) cause the capital stock of such Subsidiary to
be pledged under the HomeSide Pledge Agreement pursuant to documentation
satisfactory to the Administrative Agent (including acknowledgment thereof by
such Subsidiary) and (iii) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described in
clause (i) immediately preceding, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Administrative Agent.
7.12 COMPLIANCE WITH OTHER LOAN DOCUMENTS. Cause each other
Loan Party to comply with all its obligations under each Loan Document to which
such Loan Party is a party.
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7.13 MAINTENANCE OF AGENCY STATUS. In the case of each
Borrower and, to the extent necessary or desirable in the normal conduct of its
business, BMC and each Subsidiary, maintain at all times its status as a FNMA
and FHMLC approved Seller/Servicer, a GNMA approved Issuer/Servicer, a HUD
Direct Endorsement Lender, a VA-approved Lender and an FHA approved lender in
good standing.
7.14 GNMA ACKNOWLEDGEMENT AGREEMENTS. If an Acknowledgement
Agreement from GNMA becomes generally available in a form that the
Administrative Agent determines is acceptable, use its best efforts to obtain
and deliver such applicable Acknowledgement Agreements from GNMA relating to the
Mortgage Loans serviced on behalf of GNMA included in the Eligible Servicing
Portfolio as the Administrative Agent may from time to time request.
SECTION 8. NEGATIVE COVENANTS
HomeSide hereby agrees that, so long as the Commitments remain
in effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, HomeSide shall not, and (except with
respect to subsection 8.1) shall not permit any of its Subsidiaries to, directly
or indirectly:
8.1 Financial Condition Covenants.
-----------------------------
(a) MAINTENANCE OF ADJUSTED CONSOLIDATED TANGIBLE NET WORTH.
Permit Adjusted Consolidated Tangible Net Worth at any date to be less
than an amount equal to the sum of (i) an amount equal to 80% of
Adjusted Consolidated Tangible Net Worth as at the Closing Date PLUS
(ii) an amount equal to 50% of the excess of (A) the aggregate amount
of net proceeds received during the period from the Closing Date
through such date by Holdings from the issuance of Capital Stock other
than to Sponsors over (B) the amount thereof applied to prepay or
redeem the Holdings Notes PLUS (iii) an amount equal to 80% of the sum
of Consolidated Net Income for each fiscal quarter for which
Consolidated Net Income is positive during the period from the Closing
Date through the last day of the most recently ended fiscal quarter of
HomeSide LESS (iv) the amount of Restricted Payments actually made by
HomeSide as permitted under subsection 8.9 during the period from the
Closing Date through such date (to the extent such Restricted Payments
were not deducted in determining such Adjusted Consolidated Tangible
Net Worth).
(b) LEVERAGE RATIO. Permit the ratio of Consolidated Total
Liabilities to Adjusted Consolidated Tangible Net Worth to exceed (i)
7.75:1.0 at any time during the period from the Closing Date through
and including August 31, 1997, (ii) 7.5:1.0 at any time during the
period from September 1, 1997 through and including November 30, 1998
or (iii) 7.0:1.0 at any time thereafter.
(c) SERVICING-RELATED DEBT RATIO. Permit the ratio of
Consolidated Servicing- Related Debt to Adjusted Consolidated Tangible
Net Worth to exceed (i) 2.0:1.0 at any
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time during the period from the Closing Date through and including
August 31, 1997, (ii) 1.75:1.0 at any time during the period from and
including September 1, 1997 through and including August 31, 1998 or
(iii) 1.5:1.0 at any time thereafter.
(d) CASH FLOW COVERAGE RATIO. Permit (i) for the period of
three consecutive fiscal quarters of HomeSide ending on February 28,
1997, or (ii) for any period of four consecutive fiscal quarters of
HomeSide ending thereafter, the ratio of (A) the sum of (1)
Consolidated Cash Flow for such period plus (2) Consolidated Interest
and Dividend Expense for such period to (B) Consolidated Interest and
Dividend Expense for such period to be less than 3.0:1.0.
8.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrowers under this Agreement;
(b) Indebtedness of HomeSide to any Subsidiary Guarantor and
of any Subsidiary to HomeSide or any other Subsidiary Guarantor;
(c) Indebtedness outstanding on the date hereof and listed on
Schedule 8.2 and any refinancings, refundings, renewals or extensions
thereof, PROVIDED that the principal amount of any such Indebtedness so
refinanced, refunded, renewed or extended shall not exceed the
principal amount of such Indebtedness immediately prior to the time of
such refinancing, refunding, renewal or extension;
(d) Indebtedness related to the maintenance of balances with
the holder of such Indebtedness arising under a line of credit (i)
which has a term not in excess of one year, (ii) which is secured by
Cash Equivalents having an aggregate value not materially in excess of
the outstanding amount under such line of credit and (iii) with respect
to which the net interest expense thereon (after giving effect to
compensating balances) is not in excess of the interest income earned
on the collateral securing such line of credit;
(e) repurchase agreements (including "gestation" repo
transactions) entered into in the ordinary course of HomeSide's or
HonoMo's mortgage banking business and relating to mortgage loans and
Mortgage-Backed Securities;
(f) obligations under Take-Out Commitments;
(g) intra-day overdrafts on dealer clearance accounts arising
in connection with trade settlements for Mortgage-Backed Securities;
(h) obligations of HomeSide or its Subsidiaries under Hedge
Contracts;
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(i) obligations of HomeSide under the BBMC Stock Purchase
Agreement as in effect on the BBMC Closing Date and the BMC Stock
Purchase Agreement as in effect on the BMC Closing Date;
(j) Indebtedness of HomeSide or HonoMo secured by servicing
rights, related receivables or Mortgage Loans that do not meet the
requirements for inclusion in the Eligible Servicing Portfolio and do
not constitute Collateral under the Security Agreements, in an
aggregate principal amount not to exceed $100,000,000 at any time
outstanding;
(k) Indebtedness constituting obligations under Hedging
Agreements entered into by HomeSide in the ordinary course of business;
(l) letters of credit issued for the benefit of GNMA in
connection with final pool certifications;
(m) Indebtedness that constitutes Permitted Commercial Paper
or Permitted Medium Term Debt; and
(n) additional Indebtedness of HomeSide, including in respect
of performance bonds and letters of credit (other than letters of
credit issued pursuant to the foregoing clause (k) of this subsection
8.2), not exceeding $35,000,000 in aggregate principal amount at any
one time outstanding.
8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes, assessments and other governmental
impositions not yet due or which are being contested in good faith by
appropriate proceedings; PROVIDED, that adequate reserves with respect
thereto are maintained on the books of HomeSide or its Subsidiaries, as
the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations which are not overdue for a period of
more than 60 days or which are being contested in good faith by
appropriate proceedings; PROVIDED that adequate reserves with respect
thereto are maintained on the books of HomeSide or its Subsidiaries, as
the case may be, in accordance with GAAP;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
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(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of HomeSide or such
Subsidiary;
(f) Liens of landlords, arising solely by operation of law and
which are not avoidable as a matter of law, on fixtures and moveable
property located on premises leased in the ordinary course of business;
PROVIDED, that the rental payments secured thereby are not yet due;
(g) Liens (not otherwise permitted hereunder) which secure
obligations incidental to repurchase contracts ordinary in the mortgage
banking businesses of HomeSide and its Subsidiaries;
(h) Liens (not otherwise permitted hereunder) which secure
obligations (as to HomeSide and all Subsidiaries) incidental to forward
delivery contracts ordinary in the mortgage banking businesses of
HomeSide and its Subsidiaries;
(i) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses; PROVIDED, that the principal
amount of Indebtedness secured thereby shall not exceed the principal
amount of Indebtedness so secured immediately prior to the time of such
extension, renewal or replacement, and that such extension, renewal, or
replacement Lien shall be limited to all or a part of the property
which secured the Lien so extended, renewed or replaced (plus
improvements on such property);
(j) Liens created by the Security Documents;
(k) Liens securing Indebtedness permitted under subsection
8.2(j) as described therein;
(l) Liens securing Hedging Agreements, so long as any such
Lien does not cover any type of asset that could be included as
Collateral under the Security Documents;
(m) Liens in existence on the Closing Date described on
Schedule 8.3; and
(n) Liens on Cash Equivalents securing lines of credit
permitted under subsection 8.2(d) to the extent described therein;
PROVIDED, that none of the foregoing permitted Liens shall encumber assets
Delivered as Collateral or otherwise included in the Tranche A Borrowing Base or
the Tranche B Borrowing Base other than Liens permitted by the foregoing clause
(j).
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8.4 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of HomeSide may be merged or consolidated
with or into HomeSide (PROVIDED that HomeSide shall be the continuing
or surviving corporation) or with or into any one or more wholly owned
Subsidiary Guarantor (PROVIDED that the wholly owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation);
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to HomeSide or any other wholly owned
Subsidiary Guarantor;
(c) HomeSide may dissolve any Subsidiary that is inactive and
holds minimal assets and the continued existence of which is of no
value to HomeSide, any other Loan Party or the interests of the
Lenders; and
(d) HonoMo or all or substantially all of the assets of HonoMo
may be sold in accordance with subsection 11.11.
8.5 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, other than in the ordinary course of business,
or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's
Capital Stock to any Person other than HomeSide or any wholly owned Subsidiary,
except as permitted by subsection 8.4(b) and except that HonoMo or all or
substantially all of the assets of HonoMo may be sold in accordance with
subsection 11.11.
8.6 LIMITATION ON LEASES. Permit Consolidated Lease Expense for
any fiscal year of HomeSide to exceed $7,500,000, plus, if HomeSide consummates
a sale and leaseback transaction in respect of its principal place of business,
an additional $3,000,000.
8.7 LIMITATION ON SALES AND LEASEBACKS. Enter into any
arrangement with any Person providing for the leasing by HomeSide or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by HomeSide or such Subsidiary to such Person or to any other Person
to whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of HomeSide or such Subsidiary, other than
any such arrangement with respect to the real property described on Schedule
8.3.
8.8 LIMITATION ON RECOURSE SERVICING. Permit the aggregate
outstanding face amount of mortgage loans in respect of which BMC, HomeSide or
any of its Subsidiaries holds servicing rights other than Non-Recourse Servicing
Rights to exceed $1,000,000,000.
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8.9 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any
dividend (other than dividends payable solely in common stock of HomeSide) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of HomeSide or any
warrants or options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of BMC, HomeSide or
any Subsidiary (such declarations, payments, setting apart, purchases,
redemptions, defeasances, retirements, acquisitions and distributions being
herein called "RESTRICTED PAYMENTS"), except that, (a) so long as no Event of
Default has occurred and is continuing, (i) HomeSide may declare and pay cash
dividends to BMC (which BMC may, in accordance with the BMC Guarantee, declare
and pay as cash dividends to Holdings) in an amount equal to the actual taxes
paid in cash by Holdings, such dividends to be paid substantially concurrently
with the payment of such taxes by Holdings and to be returned to HomeSide to the
extent not applied by Holdings thereto (PROVIDED that notwithstanding the
existence of an Event of Default, HomeSide shall not be prohibited by the terms
of this subsection from paying taxes due and payable in respect of HomeSide and
its consolidated Subsidiaries), (ii) HomeSide may declare and pay cash dividends
to BMC (which BMC may, in accordance with the BMC Guarantee, declare and pay as
cash dividends to Holdings) to allow Holdings to redeem Capital Stock of
Holdings held by directors and employees pursuant to employment arrangements of
HomeSide, in an aggregate annual amount not to exceed $2,000,000, (iii) HomeSide
may declare and pay cash dividends to BMC (which BMC may, in accordance with the
BMC Guarantee, declare and pay as cash dividends to Holdings) to allow Holdings
to redeem redeemable Capital Stock issued in connection with the BBMC
Acquisition and listed on Schedule 5.17 in an amount not to exceed $7,500,000 in
the aggregate after the Closing Date, and (iv) HomeSide may declare and pay cash
dividends to BMC (which BMC may, in accordance with the BMC Guarantee, declare
and pay as cash dividends to Holdings) in an amount not to exceed $75,000 in the
aggregate in each fiscal year of HomeSide, to allow Holdings to pay fees and
expenses incurred in the administration of its ordinary and normal activities
and (b) so long as no Blockage Notice (as defined below) is in effect, HomeSide
may declare and pay cash dividends to BMC (which BMC may, in accordance with the
BMC Guarantee, declare and pay as cash dividends to Holdings) in an amount equal
to the actual interest payable in cash by Holdings on the Holdings Notes, such
dividends to be paid concurrently with the payment of such interest by Holdings
and to be returned to HomeSide to the extent not applied by Holdings thereto.
For the purposes hereof a "BLOCKAGE NOTICE" shall be a notice designated as such
by the Administrative Agent to the agent or trustee of the Holdings Notes
stating that a Default or Event of Default has occurred and is continuing; each
Blockage Notice shall continue to be in effect for the period from the date of
such notice to the earlier to occur of the cure or waiver of the Default or
Event of Default that was the basis for such Blockage Notice or the date which
is 180 days after the date of such notice; PROVIDED that only one Blockage
Notice may be delivered hereunder during each period of 365 days.
8.10 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to
make (by way of the acquisition of securities of a Person or otherwise) any
expenditure in respect of the purchase or other acquisition of fixed or capital
assets (excluding (i) any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations,
(ii)
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purchases of Mortgage Loans, mortgage servicing rights, Hedge Contracts and
Mortgage-Backed Securities and (iii) expenditures made with insurance proceeds
received in respect of losses of plant, property and equipment to the extent
applied to the purchase of replacement or similar assets within one year after
receipt thereof) except for expenditures in the ordinary course of business not
exceeding, in the aggregate for HomeSide and its Subsidiaries, $15,000,000
during any fiscal year of HomeSide, PROVIDED, that the amount of such capital
expenditures permitted to be made in any fiscal year of HomeSide shall be
increased by the excess of $15,000,000 over the amount of capital expenditures
actually made in such immediately preceding fiscal year.
8.11 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person,
except:
(a) investments made in the ordinary course of HomeSide's
business, including investments in Mortgage Loans, Mortgage-Backed
Securities, mortgage servicing rights and Hedge Contracts;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of HomeSide and its
Subsidiaries in an aggregate amount not to exceed $2,500,000 at any
time outstanding;
(d) loans permitted under subsection 8.2(b); and
(e) additional investments in Persons other than Holdings or
any Subsidiary of Holdings which is not a Subsidiary of HomeSide, in an
aggregate amount not to exceed $30,000,000 at any time outstanding.
8.12 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF
CERTAIN INSTRUMENTS AND AGREEMENTS. (a) Make or permit any optional payment or
prepayment on or redemption or purchase of any Indebtedness under the Holdings
Notes or (b) amend, modify or change, or consent or agree to any amendment,
modification or change to any of the terms of (i) any such Indebtedness (other
than any such amendment, modification or change which would extend the maturity
or reduce the amount of any payment of principal thereof or which would reduce
the rate or extend the date for payment of interest thereon) or (ii) any of the
material terms of the BBMC Stock Purchase Agreement, the Stockholder Agreement
or the BMC Stock Purchase Agreement, in each case as in effect on the Closing
Date; PROVIDED that notwithstanding the provisions of clause (a) above, so long
as no Event of Default exists or is continuing, Holdings may redeem or repay a
portion of the principal amount of the Holdings Notes, and pay any make-whole or
prepayment premium required under the Holdings Notes to be paid in respect of
such redemption or prepayment, with the proceeds of the issuance by Holdings of
Capital Stock, in an aggregate principal amount of such Holdings Notes not to
exceed $70,000,000.
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96
8.13 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Except for
the agreements listed on Schedule 8.13, enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any Affiliate unless such transaction is (a)
otherwise permitted under this Agreement, (b) in the ordinary course of
HomeSide's or such Subsidiary's business and (c) upon fair and reasonable terms
no less favorable to HomeSide or such Subsidiary, as the case may be, than it
would obtain in a comparable arm's length transaction with a Person which is not
an Affiliate.
8.14 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with
any Person any agreement, other than the Loan Documents, which prohibits or
limits the ability of HomeSide or any of its Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired.
8.15 LIMITATION ON LINES OF BUSINESS. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
HomeSide and its Subsidiaries are engaged on the date of this Agreement and
businesses generally related to residential mortgage banking.
8.16 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal
year of HomeSide to end on a day other than the last day of February.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Either Borrower shall fail to pay any principal of any
Loan when due in accordance with the terms thereof or hereof; or either
Borrower shall fail to pay any interest on any Loan, or any other
amount payable hereunder, within five days after any such interest, any
fees or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by
either Borrower or any other Loan Party herein or in any other Loan
Document or which is contained in any certificate, document or
financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document shall
prove to have been incorrect in any material respect on or as of the
date made or deemed made, and the facts or circumstances in respect of
which such representation or warranty was incorrect have not changed to
make such representation or warranty correct within 30 days after it
was made or deemed made; or
(c) HomeSide or any other Loan Party shall default in the
observance or performance of any agreement contained in subsection 7.10
or Section 8 (other than subsection 8.3), in subsection 8.3 (other than
as provided in clause (i) of paragraph (d) of
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97
this Section), in Section 14 of either Borrower Security Agreement or
in Section 7 of the BMC Security Agreement; or
(d) HomeSide or any other Loan Party shall default in the
observance or performance of (i) any agreement contained in subsection
8.3 to the extent that the Lien giving rise to such default is not a
Lien on Collateral and does not secure Indebtedness in an aggregate
amount in excess of $5,000,000 or (ii) any other agreement contained in
this Agreement or any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and any such default
described in clause (i) or (ii) of this paragraph (d) shall continue
unremedied for a period of 30 days; or
(e) Holdings or any of its Subsidiaries shall (i) default in
any payment of principal of or interest on any Indebtedness (other than
the Loans) or in the payment of any Guarantee Obligation or Hedge
Termination Obligation, beyond the period of grace (not to exceed 30
days), if any, provided in the instrument or agreement under which such
Indebtedness, Guarantee Obligation or Hedge Termination Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness, Guarantee
Obligation or Hedge Termination Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or Hedge Termination Obligation
or beneficiary or beneficiaries of such Guarantee Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or such
Guarantee Obligation or Hedge Termination Obligation to become payable;
PROVIDED, HOWEVER, that no Default or Event of Default shall exist
under this paragraph unless the aggregate amount of Indebtedness,
Guarantee Obligations and/or Hedge Termination Obligations in respect
of which any default or other event or condition referred to in this
paragraph shall have occurred shall be equal to at least $15,000,000;
or
(f) (i) Holdings or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or Holdings or any
of its Subsidiaries shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against Holdings or any
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against Holdings or any of its Subsidiaries
any case, proceeding or other action seeking
<PAGE> 104
98
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) Holdings or any of its Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) Holdings or any of its Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of HomeSide or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) HomeSide or any Commonly Controlled
Entity shall, or in the reasonable opinion of the Required Lenders is
likely to, incur any liability in connection with a withdrawal from, or
the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
BMC, HomeSide or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $12,000,000 or
more, and such judgments or decrees, to the extent in excess of such
amount, shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or
(i) Except to the extent that during the existence of a
Positive Security Event the Liens thereunder may be released in
accordance with the terms thereof, (i) any of the Security Documents
shall cease, for any reason, to be in full force and effect, or
HomeSide or any other Loan Party which is a party to any of the
Security Documents shall so assert or (ii) the Lien created by any of
the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby; or
(j) Any Guarantee shall cease, for any reason, to be in full
force and effect or any Guarantor shall so assert; or
(k) (i) Holdings shall cease to own 100% of the Capital Stock
of BMC, or (ii) BMC shall cease to own 100% of the Capital Stock of
HomeSide, or (iii) the ownership
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99
interest (after giving effect to the IPO) of any of (A) Thomas H. Lee
Company and/or Madison Dearborn Capital Partners, L.P., and their
respective Affiliates, (B) Bank of Boston Corporation and/or its
Affiliates and (C) Barnett and/or its Affiliates (individually, a
"SPONSOR" and collectively, the "SPONSORS") in Holdings shall be
reduced by more than 20% (x) prior to July 27, 1997 as a result of a
sale by such Sponsor of the outstanding capital stock of Holdings held
by such Sponsor or (y) on or after July 27, 1997 if at the time of such
sale an Event of Default is continuing, or (iv) the Sponsors shall
cease to own shares representing at least 51% of the aggregate ordinary
voting power represented by the issued and outstanding Capital Stock of
Holdings on a fully diluted basis, or (v) any Person or group of
Persons acquires, directly or indirectly, beneficially or of record,
shares representing at least 20% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of Holdings on
a fully diluted basis (other than the Sponsors and an additional
partner designated by the Sponsors and approved by the board of
directors of Holdings), or (vi) Continuing Directors shall cease at any
time to constitute a majority of the board of directors of Holdings (as
used herein, "Continuing Directors" shall mean, collectively, (A) all
members of the board of directors of Holdings on the Closing Date and
(B) all members of the board of directors of Holdings who assume office
after the Closing Date and whose nomination for election by Holdings'
shareholders was approved by a majority of the Continuing Directors (or
as approved pursuant to the applicable terms of the Stockholder
Agreement);
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to either
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Required Lenders, the Administrative Agent
may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to HomeSide declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by notice to HomeSide,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT; THE COLLATERAL AGENT
10.1 APPOINTMENT. Each Lender hereby irrevocably designates
and appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents and the Collateral Agent as the agent of
such Lender under the Loan Documents to which it is
<PAGE> 106
100
a party, and each such Lender irrevocably authorizes the Administrative Agent
and the Collateral Agent, in such capacities, to execute and deliver the Loan
Documents to which it is a party and to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent or the Collateral Agent, as the case may be, by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, neither the Administrative Agent nor the Collateral
Agent shall have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against the Administrative Agent or the Collateral Agent.
10.2 DELEGATION OF DUTIES. Each of the Administrative Agent
and the Collateral Agent may execute any of its duties under this Agreement and
the other Loan Documents to which it is a party by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Neither the Administrative Agent nor the
Collateral Agent shall be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
10.3 EXCULPATORY PROVISIONS. None of the Administrative Agent,
the Collateral Agent or any of their respective officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document to which it is a party
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by either Borrower or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of either Borrower to perform its obligations
hereunder or thereunder. Neither the Administrative Agent nor the Collateral
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of either Borrower.
10.4 RELIANCE BY ADMINISTRATIVE AGENT AND COLLATERAL AGENT.
Each of the Administrative Agent and the Collateral Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to HomeSide), independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. Each of the Administrative Agent and the
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101
Collateral Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, to the extent
required by this Agreement, all of the Lenders) as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each of the Administrative Agent and the
Collateral Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders (or, to the extent required by
this Agreement, all of the Lenders), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.
10.5 NOTICE OF DEFAULT. Neither the Administrative Agent nor
the Collateral Agent shall be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless it has received
notice from a Lender or HomeSide referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, to
the extent required by this Agreement, all of the Lenders); PROVIDED that unless
and until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT, COLLATERAL AGENT
AND OTHER LENDERS. Each Lender expressly acknowledges that neither the
Administrative Agent nor the Collateral Agent nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent or the Collateral Agent hereafter taken, including any review of the
affairs of either Borrower, shall be deemed to constitute any representation or
warranty by the Administrative Agent or the Collateral Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or the Collateral Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of
either Borrower and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or the Collateral Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of either Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent or the Collateral Agent hereunder, the Administrative Agent
and the Collateral Agent shall not have any duty or responsibility to provide
any Lender
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with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
either Borrower which may come into the possession of the Administrative Agent
or the Collateral Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
10.7 INDEMNIFICATION. The Lenders agree to indemnify each of
the Administrative Agent and the Collateral Agent in its capacity as such (to
the extent not reimbursed by the Borrowers and without limiting the obligation
of the Borrowers to do so), ratably according to their respective Commitment
Percentages in effect on the date on which indemnification is sought, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent or the Collateral Agent in any way relating to
or arising out of the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent or the Collateral Agent under or in connection with
any of the foregoing; PROVIDED that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Administrative Agent or the
Collateral Agent, as the case may be. The agreements in this subsection shall
survive the payment of the Loans and all other amounts payable hereunder.
10.8 ADMINISTRATIVE AGENT AND COLLATERAL AGENT IN ITS
INDIVIDUAL CAPACITY. The Administrative Agent and the Collateral Agent and their
respective affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrowers as though such Person were not
the Collateral Agent or the Administrative Agent hereunder, as the case may be,
and under the other Loan Documents. With respect to the Loans made by it, the
Administrative Agent and the Collateral Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent or the
Collateral Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent and the Collateral Agent in their individual capacity.
10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall
succeed to the rights, powers and duties of the Administrative Agent hereunder.
Effective upon such appointment and approval, the term "Administrative Agent"
shall mean such successor agent, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 10 shall inure to its benefit as to any actions taken or omitted to
be
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taken by it while it was Administrative Agent under this Agreement and the other
Loan Documents.
10.10 SUCCESSOR COLLATERAL AGENT. The Collateral Agent may
resign or be removed as Collateral Agent, and a successor Collateral Agent may
be appointed, in accordance with Section 12 of the Borrower Security Agreements
and Section 5 of the BMC Security Agreement. After any retiring Collateral
Agent's resignation or removal as Collateral Agent, the provisions of this
Section 10 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Collateral Agent under this Agreement and the other
Loan Documents.
10.11 CONCERNING THE COLLATERAL AGENT AND THE SECURITY
AGREEMENTS. The Collateral Agent shall perform the functions specifically set
forth for it in the Security Agreements, and, in performing such functions,
shall follow the directions of the Administrative Agent (given at the direction
of, or with the consent of, the Required Lenders or all the Lenders, as the case
may be, as prescribed by subsection 11.1). The Lenders hereby instruct the
Collateral Agent and Administrative Agent to execute and deliver the Security
Agreements on behalf of the Lenders. HomeSide shall compensate the Collateral
Agent for its services as such as from time to time agreed by HomeSide and the
Collateral Agent.
SECTION 11. MISCELLANEOUS
11.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Administrative Agent may, from time to time, (a) enter
into with HomeSide and HonoMo written amendments, supplements or modifications
hereto and to the other Loan Documents for the purpose of adding any provisions
to this Agreement or the other Loan Documents or changing in any manner the
rights of the Lenders or of the Borrowers hereunder or thereunder or (b) waive,
on such terms and conditions as the Required Lenders or the Administrative
Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents or any Default or
Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver
and no such amendment, supplement or modification shall (i) reduce the amount or
extend the scheduled date of maturity of any Loan or of any installment thereof,
or reduce the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or increase the aggregate amount or extend
the expiration date of any Lender's Commitments, in each case without the
consent of each Lender affected thereby, or (ii) amend, modify or waive any
provision of this subsection or reduce the percentage specified in the
definition of Required Lenders, or consent to the assignment or transfer by
either Borrower of any of its rights and obligations under this Agreement and
the other Loan Documents, or release any of the Guarantees or (except as
contemplated by the Security Agreements) any portion of the Collateral, or
increase the percentage figures representing the advance rates set forth in
clauses (a) through (d) of subsection 4.1 or clauses (a) through (g) of
subsection 4.2, or amend the definition of "Negative Security Event" or
"Positive Security Event" to change the language set forth in such
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definition that expressly specifies the events that constitute a Negative
Security Event or a Positive Security Event, as the case may be, in each case
without the written consent of all the Lenders, or (iii) amend, modify or waive
any provision of Section 10 relating to the Administrative Agent or the
Collateral Agent without the written consent of the then Administrative Agent or
Collateral Agent, as the case may be; PROVIDED, FURTHER that, notwithstanding
the foregoing, in the event of any sale of HonoMo and the satisfaction of the
conditions set forth in subsection 11.11, the Administrative Agent will release
HonoMo from its obligations under the Subsidiaries Guarantee and will release
the stock of HonoMo from the lien of the HomeSide Pledge Agreement. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon the Borrowers, the Lenders, the
Administrative Agent, the Collateral Agent and all future holders of the Loans.
In the case of any waiver, the Borrowers, the Lenders, the Administrative Agent
and the Collateral Agent shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
11.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrowers, the Administrative Agent and the
Collateral Agent and as set forth in Schedule I in the case of the other parties
hereto, or to such other address as may be hereafter notified by the respective
parties hereto:
The Borrowers: HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
Attention: Joe K. Pickett
Fax: 904-281-3745
with a copy to: James Westra, Esq.
Hutchins, Wheel r & Dittmar
101 Federal Street
Boston, MA 02110
Fax: 617-951-1295
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: Lisa S hwabe
Fax: 212-270-0412
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with a copy to: Chase Loan and Agency Services Group
One Chase Manhattan Plaza
Eighth Floor
New York, NY 10081
Attention: Barbara Clemens
Fax: 212-552-7500
The Collateral Agent: The First National Bank of Boston
100 Federal Street
Mail Stop: 01-1B-06
Boston, MA 02110
Attention: David L. Hall, Senior Manager
Fax: 617-434-8295
PROVIDED that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received, and any notices to or upon
the Collateral Agent pursuant to the Security Agreements shall be given as
provided therein.
11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
11.5 PAYMENT OF EXPENSES AND TAXES. HomeSide agrees (a) to pay
or reimburse each of the Administrative Agent and the Collateral Agent for all
its reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent, (b) to pay or reimburse each Lender, the Administrative
Agent and the Collateral Agent for all its reasonable costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel to each
Lender and of counsel to the Administrative Agent and the Collateral Agent (c)
to pay, and indemnify and hold harmless each Lender, the Administrative Agent
and the Collateral Agent from, any and all recording and filing fees and any and
all liabilities with respect to, or
<PAGE> 112
106
resulting from any delay in paying, stamp, excise and other taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, and indemnify and hold harmless each
Lender and each of the Administrative Agent, the Collateral Agent, the
Syndication Agent and the Documentation Agent (each, an "indemnified person")
from and against, any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement or the other Loan Documents or
the use of the proceeds of the Loans (including, without limitation, in
connection with the Acquisitions) and any such other documents, including,
without limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of HomeSide, any of its Subsidiaries or any of the Premises (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
PROVIDED that HomeSide shall have no obligation hereunder to any indemnified
person with respect to indemnified liabilities arising from the gross negligence
or willful misconduct of such indemnified person. The agreements in this
subsection shall survive repayment of the Loans and all other amounts payable
hereunder.
11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrowers, the Lenders, the Administrative Agent, the Collateral Agent and their
respective successors and assigns, except that neither Borrower may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
lending business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("PARTICIPANTS") participating interests in any
Loan owing to such Lender, any Commitment of such Lender or any other interest
of such Lender hereunder and under the other Loan Documents. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Loan for
all purposes under this Agreement and the other Loan Documents, and the
Borrowers and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. No Lender shall
be entitled to create in favor of any Participant, in the participation
agreement pursuant to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any matter
relating to this Agreement or any other Loan Document except for those specified
in clause (i) of the proviso to subsection 11.1. Each Borrower agrees that if
amounts outstanding under this Agreement are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its
<PAGE> 113
107
participating interest were owing directly to it as a Lender under this
Agreement, PROVIDED that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 11.7(a) as fully as if it were a
Lender hereunder. Each Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 3.9, 3.10 and 3.11 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it were a Lender; PROVIDED that, in the case of subsection 3.10, such
Participant shall have complied with the requirements of said subsection and
PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial
lending business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the consent
of HomeSide and the Administrative Agent (which in each case shall not be
unreasonably withheld), to an additional bank or financial institution (an
"ASSIGNEE") all or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit I, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by HomeSide and the Administrative Agent) and delivered to
the Administrative Agent for its acceptance and recording in the Register,
PROVIDED that, in the case of any such assignment to an additional bank or
financial institution, the sum of the aggregate principal amount of the Loans
and the aggregate amount of the unused Commitments being assigned and, if such
assignment is of less than all of the rights and obligations of the assigning
Lender, the sum of the aggregate principal amount of the Loans and the aggregate
amount of the unused Commitments remaining with the assigning Lender are each
not less than $10,000,000 (or such lesser amount as may be agreed to by HomeSide
and the Administrative Agent), and PROVIDED, FURTHER, that no assignment may be
made by any Lender that does not include pro-rata Tranche A Commitments, Tranche
B Commitments, Tranche A Loans and Tranche B Loans in the same relative
proportions as those of the amounts of such Commitments and Loans held by such
Lender immediately prior to giving effect to such assignment and PROVIDED,
FURTHER, that any such assignment that would otherwise include an interest in a
Balance-Based Loan may only become effective on the last day of the Interest
Period applicable thereto. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto; it being understood that
any indemnification in this Agreement in favor of such Lender that by its terms
survives termination of this Agreement shall continue to inure to the benefit of
such Lender). Notwithstanding any provision of this paragraph (c) and paragraph
(e) of this subsection, the consent of HomeSide
<PAGE> 114
108
shall not be required for any assignment which occurs at any time when any of
the events described in Section 9(f) shall have occurred and be continuing.
(d) The Administrative Agent, on behalf of each of the
Borrowers, shall maintain at the address of the Administrative Agent referred to
in subsection 11.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "REGISTER") for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal amounts of the Loans owing to,
each Lender from time to time. The entries in the Register shall be conclusive,
in the absence of manifest error, and the Borrowers, the Administrative Agent
and the Lenders may (and, in the case of any Loan or other obligation hereunder
not evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by HomeSide or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by HomeSide and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and HomeSide.
(f) Each Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee
any and all financial information in such Lender's possession concerning such
Borrower and its Affiliates which has been delivered to such Lender by or on
behalf of such Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of such Borrower in connection with such Lender's
credit evaluation of such Borrower and its Affiliates prior to becoming a party
to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED
LENDER") shall at any time receive any payment of all or part of its Loans then
due and owing, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in subsection 9(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect
<PAGE> 115
109
of such other Lender's Loans then due and owing, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of each such other Loans or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to
either Borrower, any such notice being expressly waived by each Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable by
either Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of either Borrower. Each Lender
agrees promptly to notify HomeSide and the Administrative Agent after any such
set-off and application made by such Lender, PROVIDED that the failure to give
such notice shall not affect the validity of such set-off and application.
11.8 BALANCE LENDERS. Prior to the date of this Agreement,
HomeSide has designated the Lenders that will be the Balance Lenders initially,
and will cause each such Balance Lender to enter into a Balance Lender Agreement
with HomeSide on or before the Closing Date. From time to time after the Closing
Date, any Lender may, upon the request of HomeSide, agree to become a Balance
Lender. In order to become a Balance Lender, a Lender shall enter into a Balance
Lender Agreement with HomeSide, and HomeSide and such Lender shall give the
Administrative Agent notice thereof; such Lender shall be permitted to make
Balance-Based Loans as a Balance Lender on any Borrowing Date that is at least
ten days after receipt by the Administrative Agent of such notice.
11.9 RELEASE OF COLLATERAL UPON OCCURRENCE OF POSITIVE
SECURITY EVENT. Upon the occurrence of a Positive Security Event, the
Administrative Agent will, at the request of HomeSide, direct the Collateral
Agent to take, and the Collateral Agent will take, at the expense of the
Borrowers, all necessary actions to release its security interest in all
Collateral, and any Collateral subject to such security interests, in accordance
with the Security Agreements (other than stock pledged pursuant to the Pledge
Agreements).
11.10 AUTHORITY OF HOMESIDE ON BEHALF OF HONOMO. HonoMo hereby
authorizes HomeSide to take any action hereunder and under each Loan Document to
which HonoMo is a party on its behalf, including delivery of Borrowing Notices,
Payment Notices and Conversion Notices under Section 2 and execution and
delivery of amendments and waivers to any Loan Document, appoints HomeSide its
attorney-in-fact for all purposes hereunder, and hereby ratifies all actions
taken by HomeSide in such capacity. HonoMo and HomeSide agree that the
<PAGE> 116
110
Administrative Agent, the Collateral Agent and the Lenders shall be entitled to
rely on any instruction, notice or other action by HomeSide on behalf of HonoMo
as if such instruction, notice or other action were given or taken by HonoMo.
HonoMo agrees that any notice affecting it or applicable to it or its Loans
hereunder given to HomeSide shall be deemed to be notice effective for the
purposes thereof to HonoMo.
11.11 TERMINATION OF HONOMO AS BORROWER. With 10 days prior
written notice by HomeSide to the Administrative Agent, the rights and
obligations of HonoMo as a Borrower hereunder may be terminated, after the
effectiveness of which no Loans will be made to HonoMo, no assets of HonoMo will
be included in any Borrowing Base, and the HonoMo Tranche A Sublimit and the
HonoMo Tranche B Sublimit will each be deemed to be zero, PROVIDED that (i) in
order for such termination to be effective, no Loans, interest, fees, expenses
or other obligations owing or payable by HonoMo may be outstanding or payable,
and no Default or Event of Default shall have occurred and be continuing or
result from giving effect thereto, (ii) HonoMo will execute and deliver such
instruments and documents requested by the Administrative Agent in connection
therewith, and (iii) all obligations and liabilities of HonoMo under subsection
11.6 shall survive such termination and remain in full force and effect. Upon
such effectiveness in connection with any sale by HomeSide of HonoMo, the
Collateral Agent and the Administrative Agent, respectively, will take, at the
request of HomeSide and at the expense of HomeSide and HonoMo, all necessary
actions to release its security interest in all Collateral under the HonoMo
Security Agreement and the Collateral under the HomeSide Pledge Agreement
representing stock issued by HonoMo, and HonoMo will automatically be released
from its obligations under the Subsidiary Guarantee, PROVIDED that at the time
of such effectiveness and release, the consolidated total assets of HonoMo and
its Subsidiaries represent less than 5% of the consolidated total assets of
HomeSide and its Subsidiaries, in each case determined in accordance with GAAP.
11.12 COUNTERPARTS. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be lodged with HomeSide
and the Administrative Agent.
11.13 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.14 INTEGRATION. This Agreement and the other Loan Documents
represent the entire agreement of the Borrowers, the Administrative Agent and
the Lenders with respect to the subject matter hereof and thereof, and there are
no promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof or thereof not expressly
set forth or referred to herein or in the other Loan Documents.
<PAGE> 117
111
11.15 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
11.16 SUBMISSION TO JURISDICTION; WAIVERS. Each Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts
from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to HomeSide at its address set forth in subsection 11.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
11.17 ACKNOWLEDGEMENTS. Each Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent, the Collateral Agent nor
any Lender has any fiduciary relationship with or duty to either
Borrower arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between Administrative
Agent, the Collateral Agent and the Lenders, on the one hand, and the
Borrowers, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
<PAGE> 118
112
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrowers and the
Lenders.
11.18 WAIVERS OF JURY TRIAL. THE BORROWERS, THE ADMINISTRATIVE
AGENT, THE COLLATERAL AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 119
113
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
HOMESIDE LENDING, INC.
By:
------------------------------------------
Title:
HONOLULU MORTGAGE COMPANY, INC.
By:
------------------------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
------------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A., as
Syndication Agent and as a Lender
By:
------------------------------------------
Title:
<PAGE> 120
114
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Senior Managing Agent and as a
Lender
By:
------------------------------------------
Title: Vice President
<PAGE> 121
115
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Managing Agent
and as a Lender
By:
------------------------------------------
Title:
<PAGE> 122
116
CANADIAN IMPERIAL BANK OF
COMMERCE, as a Managing Agent and as a
Lender
By:
------------------------------------------
Title:
<PAGE> 123
117
CREDIT LYONNAIS, NEW YORK BRANCH, as
a Managing Agent and as a Lender
By:
------------------------------------------
Title:
<PAGE> 124
118
UNION BANK OF SWITZERLAND, NEW
YORK BRANCH, as a Managing Agent and
as a Lender
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 125
119
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, as a Managing Agent
and as a Lender
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 126
120
THE BANK OF NEW YORK, as a Managing
Agent and as a Lender
By:
------------------------------------------
Title:
<PAGE> 127
121
BANKERS TRUST COMPANY, as a Co-Agent
and as a Lender
By:
------------------------------------------
Title:
<PAGE> 128
122
BANQUE NATIONALE DE PARIS, as a
Co-Agent and as a Lender
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 129
123
MELLON BANK, N.A., as a Co-Agent
and as a Lender
By:
------------------------------------------
Title:
<PAGE> 130
124
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY, as Co-Agent and as a
Lender
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 131
125
FLEET BANK, N.A., as a Co-Agent and
as a Lender
By:
------------------------------------------
Title:
<PAGE> 132
126
THE NATIONAL BANK OF KUWAIT
By:
------------------------------------------
Title:
<PAGE> 133
127
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:
------------------------------------------
Title:
<PAGE> 134
128
THE FUJI BANK, LIMITED, NEW YORK
BRANCH
By:
------------------------------------------
Title:
<PAGE> 135
129
BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By:
------------------------------------------
Title:
<PAGE> 136
130
THE SUMITOMO BANK, LIMITED
By:
------------------------------------------
Title:
<PAGE> 137
131
SUNTRUST BANK, INC.
By:
------------------------------------------
Title:
<PAGE> 138
132
THE TOYO TRUST & BANKING CO., LTD.
By:
------------------------------------------
Title:
<PAGE> 139
133
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By:
------------------------------------------
Title:
<PAGE> 140
134
PNC BANK KENTUCKY, INC.
By:
------------------------------------------
Title:
<PAGE> 141
135
THE SAKURA BANK, LIMITED
ATLANTA AGENCY
By:
------------------------------------------
Title:
<PAGE> 142
136
COMPASS BANK
By:
------------------------------------------
Title:
<PAGE> 143
137
BANQUE PARIBAS
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 144
138
COMERICA BANK
By:
------------------------------------------
Title:
<PAGE> 145
139
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 146
140
THE DAI-ICHI KANGYO BANK, LIMITED
ATLANTA AGENCY
By:
------------------------------------------
Title:
<PAGE> 147
141
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 148
142
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------------
Title:
<PAGE> 149
143
LTCB TRUST COMPANY
By:
------------------------------------------
Title:
<PAGE> 150
144
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------------
Title:
<PAGE> 151
145
KREDIETBANK N.V., GRAND CAYMAN
BRANCH
By:
------------------------------------------
Title:
<PAGE> 152
146
THE SANWA BANK, LIMITED, ATLANTA
AGENCY
By:
------------------------------------------
Title:
<PAGE> 153
147
THE TOKAI BANK, LIMITED
ATLANTA AGENCY
By:
------------------------------------------
Title:
<PAGE> 154
148
THE YASUDA TRUST AND BANKING
COMPANY, LIMITED, NEW YORK BRANCH
By:
------------------------------------------
Title:
<PAGE> 155
149
FIRST TRUST BANK
By:
------------------------------------------
Title:
<PAGE> 156
150
BANCA MONTE DEI PASCHI DI SIENA
SPA
By:
------------------------------------------
Title:
By:
------------------------------------------
Title:
<PAGE> 157
151
ALLIED IRISH BANK
By:
------------------------------------------
Title:
<PAGE> 158
152
PT. BANK NEGARA INDONESIA (PERSERO),
TBK.
By:
------------------------------------------
Title:
<PAGE> 159
153
GUARANTY FEDERAL
By:
------------------------------------------
Title:
<PAGE> 160
154
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
------------------------------------------
Title:
<PAGE> 161
155
THE SUMITOMO TRUST AND BANKING CO.
LTD., LOS ANGELES AGENCY
By:
------------------------------------------
Title:
<PAGE> 1
Exhibit 10.24
FORM OF HOLDINGS PLEDGE AGREEMENT
AMENDED AND RESTATED HOLDINGS PLEDGE AGREEMENT, dated as of January 31,
1997 (this "AGREEMENT"), made by HOMESIDE, INC., a Delaware corporation (the
"PLEDGOR"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in
such capacity, the "ADMINISTRATIVE AGENT") for the Lenders parties to the Credit
Agreement, dated as of January 31, 1997 (as amended, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among (i) HOMESIDE LENDING,
INC. ("HOMESIDE") and HONOLULU MORTGAGE COMPANY, INC. ("HONOMO"), as Borrowers
(collectively, the "BORROWERS"), (ii) the several banks and other financial
institutions from time to time parties to the Credit Agreement (collectively,
the "LENDERS"), (iii) the Lenders from time to time designated as Balance
Lenders pursuant to subsection 11.8 of the Credit Agreement (in such capacity,
collectively, the "BALANCE LENDERS"), (iv) THE FIRST NATIONAL BANK OF BOSTON, as
Collateral Agent, and (v) the Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Pledgor in respect of the Existing Credit
Agreement are secured pursuant to, inter alia, the Holdings Pledge Agreement,
dated as of January 31, 1997 (the "EXISTING HOLDINGS PLEDGE AGREEMENT") among
the parties to this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans that the
Existing Holdings Pledge Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto hereby
agree that on the Closing Date the Existing Holdings Pledge Agreement shall be
amended and restated in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
(b) The following terms shall have the following meanings:
<PAGE> 2
2
"AGREEMENT": this Amended and Restated Holdings Pledge Agreement, as the
same may be amended, modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in paragraph 8(a).
"ISSUER": the company identified on SCHEDULE 1 attached hereto as the
issuer of the Pledged Stock.
"OBLIGATIONS": as defined in the Guarantee.
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1 hereto,
together with all stock certificates, options or rights of any nature whatsoever
that may be issued or granted by the Issuer to the Pledgor while this Agreement
is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1) of
the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, collections
thereon or distributions with respect thereto.
"SECURED OBLIGATIONS": the collective reference to (a) the Obligations and
(b) all obligations and liabilities of the Pledgor which may arise under or in
connection with this Agreement or any other Loan Document to which the Pledgor
is a party, whether on account of reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders that are
required to be paid by the Pledgor pursuant to the terms of this Agreement or
any other Loan Document to which the Pledgor is a party).
"SECURITIES ACT": the Securities Act of 1933, as amended.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
<PAGE> 3
3
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers to the
Administrative Agent, for the ratable benefit of the Lenders, all the Pledged
Stock and hereby grants to the Administrative Agent, for the ratable benefit of
the Lenders, a first priority security interest in the Collateral, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Secured
Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Administrative Agent
of each certificate representing one or more shares of Pledged Stock, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Administrative Agent so requests,
signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants
that:
(a) The Pledgor has the corporate power and authority and the legal right
to execute and deliver, to perform its obligations under, and to grant the
security interest in the Collateral pursuant to, this Agreement and has taken
all necessary corporate action to authorize its execution, delivery and
performance of, and grant of the security interest in the Collateral pursuant
to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of the
Pledgor, enforceable in accordance with its terms, and upon delivery to the
Administrative Agent of the stock certificates evidencing the Pledged Stock, the
security interest created pursuant to this Agreement will constitute a valid,
perfected first priority security interest in the Collateral, enforceable in
accordance with its terms against all creditors of the Pledgor and any Persons
purporting to purchase any Collateral from the Pledgor, except in each case as
enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
(c) The execution, delivery and performance of this Agreement will not
violate any provision of any Requirement of Law or Contractual Obligation of the
Pledgor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Pledgor pursuant to any Requirement of Law or
Contractual Obligation of the Pledgor, except the security interest created by
this Agreement.
(d) No consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of the
Pledgor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the knowledge of the Pledgor,
threatened by or against
<PAGE> 4
4
the Pledgor or against any of its properties or revenues with respect to this
Agreement or any of the transactions contemplated hereby.
(f) The shares of Pledged Stock constitute all the issued and outstanding
shares of all classes of the capital stock of the Issuer.
(g) All the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable.
(h) The Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock, free of any and all Liens or options in
favor of, or claims of, any other Person, except the security interest created
by this Agreement, other than the Liens under the Second Lien Pledge Agreements
to which the Pledgor is a party as in effect on the Closing Date.
5. COVENANTS. The Pledgor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for, any shares of the Pledged Stock, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Administrative Agent and
the Lenders, hold the same in trust for the Administrative Agent and the Lenders
and deliver the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by the Pledgor to the Administrative Agent, if required,
together with an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to the
terms hereof, as additional collateral security for the Secured Obligations. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Secured
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Stock or any property shall be distributed upon or with
respect to the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of the Issuer or pursuant to the reorganization
thereof, the property so distributed shall be delivered to the Administrative
Agent to be held by it hereunder as additional collateral security for the
Secured Obligations. If any sums of money or property so paid or distributed in
respect of the Pledged Stock shall be received by the Pledgor, the Pledgor
shall, until such money or property is paid or delivered to the Administrative
Agent, hold such money or property in trust for the Lenders, segregated from
other funds of the Pledgor, as additional collateral security for the Secured
Obligations.
<PAGE> 5
5
(b) Without the prior written consent of the Administrative Agent, the
Pledgor will not (1) vote to enable, or take any other action to permit, the
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of the Issuer,
(2) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, (3) create, incur or permit to exist any
Lien or option in favor of, or any claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the security interests
created by this Agreement and the other Security Documents or (4) enter into any
agreement or undertaking restricting the right or ability of the Pledgor or the
Administrative Agent to sell, assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first priority, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Administrative
Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Administrative Agent may reasonably request for the
purposes of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Administrative Agent, duly
endorsed in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Agreement.
(d) The Pledgor shall pay, and save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the Pledgor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section , the Pledgor shall be permitted to
receive all cash dividends paid in the normal course of business of the Issuer
and consistent with past practice in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock;
PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or
other action taken which, in the Administrative Agent's reasonable judgment,
would impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, the Notes, this Agreement or
any other Loan Document.
7. RIGHTS OF THE LENDERS AND THE ADMINISTRATIVE AGENT. (a) All money
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
in a Collateral Account. All Proceeds while held by the Administrative Agent in
a Collateral Account (or by the Pledgor in trust for the
<PAGE> 6
6
Administrative Agent and the Lenders) shall continue to be held as collateral
security for all the Secured Obligations and shall not constitute payment
thereof until applied as provided in paragraph 8(a).
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the Pledgor, (1) the Administrative Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Secured Obligations in such order as the Administrative Agent may
determine, and (2) all shares of the Pledged Stock shall be registered in the
name of the Administrative Agent or its nominee, and the Administrative Agent or
its nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
the Issuer or otherwise and (B) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of the Issuer or upon the
exercise by the Pledgor or the Administrative Agent of any right, privilege or
option pertaining to such shares of the Pledged Stock, and in connection
therewith, the right to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account for property actually
received by it, but the Administrative Agent shall have no duty to the Pledgor
to exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Administrative Agent's election, the
Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Secured Obligations in such order as the
Administrative Agent may elect.
(b) If an Event of Default shall occur and be continuing, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Administrative Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of the Administrative Agent or any Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Administrative
<PAGE> 7
7
Agent or any Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Pledgor, which right or equity is hereby waived and
released. The Administrative Agent shall apply any Proceeds from time to time
held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the exercise of the rights of the Administrative Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Administrative Agent, to the payment in whole or
in part of the Secured Obligations, in such order as the Administrative Agent
may elect, and only after such application and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the
Administrative Agent account for the surplus, if any, to the Pledgor. To the
extent permitted by applicable law, the Pledgor waives all claims, damages and
demands it may acquire against the Administrative Agent or any Lender arising
out of the exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.
(c) The Pledgor waives and agrees not to assert any rights or privileges
which it may acquire under Section 9-112 of the Code. The Pledgor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Administrative Agent or any
Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 8(b), and if in the sole determination of the
Administrative Agent it is necessary or advisable to have the Pledged Stock, or
that portion thereof to be sold, registered under the provisions of the
Securities Act, the Pledgor will cause the Issuer to (1) execute and deliver,
and cause the directors and officers of the Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (2) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (3) to make all
amendments thereto and/or to the related prospectus that are permitted by law
which, in the opinion of the Administrative Agent, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to cause the Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
<PAGE> 8
8
(b) The Pledgor recognizes that the Administrative Agent may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section valid and binding
and in compliance with any and all other applicable Requirements of Law. The
Pledgor further agrees that a breach of any of the covenants contained in this
Section will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor hereby
authorizes and instructs the Issuer to comply with any instruction received by
it from the Administrative Agent in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that the Issuer shall be fully protected in so complying.
11. ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) The Pledgor
hereby irrevocably constitutes and appoints the Administrative Agent and any
officer or agent of the Administrative Agent, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of the Pledgor and in the name of the Pledgor
or in the Administrative Agent's own name, from time to time in the
Administrative Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all necessary and appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done pursuant to the power of attorney granted in paragraph . All
powers, authorizations and agencies contained in this Agreement are coupled with
an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
<PAGE> 9
9
12. DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Administrative Agent deals with similar
securities and property for its own account, except that the Administrative
Agent shall have no obligation to invest funds held in any Collateral Account
and may hold the same as demand deposits. Neither the Administrative Agent, any
Lender nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent for the benefit of the Lenders under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. AUTHORITY OF ADMINISTRATIVE AGENT. The Pledgor acknowledges that the
rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Pledgor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Pledgor nor the
Issuer shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
15. NOTICES. All notices, requests and demands to or upon the
Administrative Agent or the Pledgor to be effective shall be in writing (or by
telex, fax or similar electronic transfer confirmed in writing) and shall be
deemed to have been duly given or made (a) when delivered by hand or (b) if
given by mail, when deposited in the mails by certified mail, return receipt
requested, or (c) if by telex, fax or similar electronic transfer, when sent and
receipt has been confirmed, addressed as follows:
(1) if to the Administrative Agent, at its address or transmission number
for notices provided in subsection 11.2 of the Credit Agreement; and
(2) if to the Pledgor, at its address or transmission number for notices
set forth under its signature below and to:
<PAGE> 10
10
James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: 617-951-1295.
The Administrative Agent and the Pledgor may change their addresses and
transmission numbers for notices by notice in the manner provided in this
Section.
16. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent, provided that any provision of this Agreement may be
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 17(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
<PAGE> 11
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20. GOVERNING LAW. This Agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
HOMESIDE, INC.
By
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Title
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THE CHASE MANHATTAN BANK
By
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Title
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<PAGE> 12
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended and
Restated Holdings Pledge Agreement dated January 31, 1997, made by HomeSide,
Inc. for the benefit of the Administrative Agent and the Lenders (the "HOLDINGS
PLEDGE AGREEMENT"). The undersigned agrees for the benefit of the Administrative
Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Holdings Pledge
Agreement and will comply with such terms insofar as such terms are applicable
to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in writing
of the occurrence of any of the events described in paragraph 5(a) of the
Holdings Pledge Agreement.
3. The terms of paragraph 9(c) of the Holdings Pledge Agreement shall apply
to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 9 of the Holdings Pledge
Agreement.
HOMESIDE HOLDINGS, INC.
By
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Title
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Address for Notices:
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Telex:
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Fax:
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<PAGE> 13
SCHEDULE 1
TO HOLDINGS
PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock Stock Certificate No. Number of Shares
- ------ -------------- --------------------- ----------------
<PAGE> 1
EXHIBIT 10.25
FORM OF HOMESIDE PLEDGE AGREEMENT
AMENDED AND RESTATED HOMESIDE PLEDGE AGREEMENT, dated as of January 31,
1996 (this "AGREEMENT"), made by HOMESIDE LENDING, INC., a Florida corporation
(the "PLEDGOR"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent
(in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders parties to the
Amended and Restated Credit Agreement, dated as of January 31, 1997 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among (i) the Pledgor and Honolulu Mortgage Company, Inc., as Borrowers
(collectively, the "BORROWERS"), (ii) the several banks and other financial
institutions from time to time parties to the Credit Agreement (collectively,
the "LENDERS"), (iii) the Lenders from time to time designated as Balance
Lenders pursuant to subsection 11.8 of the Credit Agreement (in such capacity,
collectively, the "BALANCE LENDERS"), (iv) THE FIRST NATIONAL BANK OF BOSTON, as
Collateral Agent, and (v) the Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Pledgor under the Existing Credit
Agreement are secured pursuant to, inter alia, the HomeSide Pledge Agreement,
dated as of January 31, 1997 (the "EXISTING HOMESIDE PLEDGE AGREEMENT") among
the parties to this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans that
the Existing HomeSide Pledge Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing HomeSide Pledge Agreement
shall be amended and restated in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) The following terms shall have the following meanings:
<PAGE> 2
2
"AGREEMENT": this Amended and Restated HomeSide Pledge Agreement, as
the same may be amended, modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in paragraph 8(a).
"ISSUERS": the collective reference to the companies identified on
SCHEDULE 1 attached hereto as the issuers of the Pledged Stock; individually,
each an "ISSUER."
"OBLIGATIONS": the collective reference to the unpaid principal of and
interest on the Loans and any Notes and all other obligations and liabilities of
the Borrowers to the Administrative Agent, the Collateral Agent and the Lenders
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to either Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Loans, any Notes, this Agreement, the other Loan
Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Administrative Agent or
to the Lenders that are required to be paid by the Borrowers pursuant to the
terms of the Credit Agreement or this Agreement or any other Loan Document).
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any nature
whatsoever that may be issued or granted by each Issuer to the Pledgor while
this Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1)
of the Code in effect in the State of New York on the date hereof and, in any
event, shall include, without limitation, all dividends or other income from the
Pledged Stock, collections thereon or distributions with respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
<PAGE> 3
3
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers to
the Administrative Agent, for the ratable benefit of the Lenders, all the
Pledged Stock and hereby grants to the Administrative Agent, for the ratable
benefit of the Lenders, a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Administrative
Agent of each certificate representing one or more shares of Pledged Stock, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Administrative Agent so requests,
signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants
that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of each Issuer.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock, free of any and all Liens or options in
favor of, or claims of, any other Person, except the security interest created
by this Agreement.
(d) Upon delivery to the Administrative Agent of the stock certificates
evidencing the Pledged Stock, the security interest created by this Agreement
will constitute a valid, perfected first priority security interest in the
Collateral, enforceable in accordance with its terms against all creditors of
the Pledgor and any Persons purporting to purchase any Collateral from the
Pledgor, except as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
5. COVENANTS. The Pledgor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:
<PAGE> 4
4
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for, any shares of the Pledged Stock, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Administrative Agent and
the Lenders, hold the same in trust for the Administrative Agent and the Lenders
and deliver the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by the Pledgor to the Administrative Agent, if required,
together with an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to the
terms hereof, as additional collateral security for the Obligations. Any sums
paid upon or in respect of the Pledged Stock upon the liquidation or dissolution
of any Issuer shall be paid over to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Stock or
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of any
Issuer or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Administrative Agent to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Stock shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Administrative Agent, hold such money or property in trust
for the Lenders, segregated from other funds of the Pledgor, as additional
collateral security for the Obligations.
(b) Without the prior written consent of the Administrative Agent, the
Pledgor will not (1) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(2) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, (3) create, incur or permit to exist any
Lien or option in favor of, or any claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the security interests
created by this Agreement and the other Security Documents or (4) enter into any
agreement or undertaking restricting the right or ability of the Pledgor or the
Administrative Agent to sell, assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first priority, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Administrative
Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Administrative Agent may reasonably request for the
purposes of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
<PAGE> 5
5
chattel paper shall be immediately delivered to the Administrative Agent, duly
endorsed in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Agreement.
(d) The Pledgor shall pay, and save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the Pledgor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section , the Pledgor shall be permitted to
receive all cash dividends paid in the normal course of business of the Issuers
and consistent with past practice, to the extent permitted in the Credit
Agreement, in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock; PROVIDED, HOWEVER, that no
vote shall be cast or corporate right exercised or other action taken which, in
the Administrative Agent's reasonable judgment, would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of
the Credit Agreement, the Notes, this Agreement or any other Loan Document.
7. RIGHTS OF THE LENDERS AND THE ADMINISTRATIVE AGENT. (a) All money
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
in a Collateral Account. All Proceeds while held by the Administrative Agent in
a Collateral Account (or by the Pledgor in trust for the Administrative Agent
and the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in paragraph 8(a).
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the Pledgor, (1) the Administrative Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Obligations in such order as the Administrative Agent may
determine, and (2) all shares of the Pledged Stock shall be registered in the
name of the Administrative Agent or its nominee, and the Administrative Agent or
its nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
any Issuer or otherwise and (B) any and all rights of conversion, exchange, and
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of any Issuer, or upon
the exercise by the Pledgor or the Administrative Agent of any right, privilege
or option pertaining to such shares of the Pledged Stock, and in connection
therewith, the right to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account
<PAGE> 6
6
for property actually received by it, but the Administrative Agent shall have no
duty to the Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Administrative Agent's election, the
Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Obligations in such order as the
Administrative Agent may elect.
(b) If an Event of Default shall have occurred and be continuing, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Pledgor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, in the
over-the-counter market, at any exchange, broker's board or office of the
Administrative Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived and released. The Administrative Agent shall apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the exercise of the rights of the Administrative
Agent and the Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Administrative Agent, to the
payment in whole or in part of the Obligations, in such order as the
Administrative Agent may elect, and only after such application and after the
payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Administrative Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Administrative Agent, the
Collateral Agent or any Lender arising out of the exercise by them of any rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Pledgor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of Collateral are insufficient to pay the Obligations and
<PAGE> 7
7
the fees and disbursements of any attorneys employed by the Collateral Agent or
any Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 8(b), and if in the sole determination of the
Administrative Agent it is necessary or advisable to have the Pledged Stock, or
that portion thereof to be sold, registered under the provisions of the
Securities Act, the Pledgor will cause each Issuer thereof to (1) execute and
deliver, and cause the directors and officers of such Issuer to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts as may be, in the opinion of the Administrative Agent, necessary or
advisable to register the Pledged Stock, or that portion thereof to be sold,
under the provisions of the Securities Act, (2) to use its best efforts to cause
the registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (3) to make all
amendments thereto and/or to the related prospectus that are permitted by law
which, in the opinion of the Administrative Agent, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and
<PAGE> 8
8
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred under
the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Agreement, without any other or further instructions from the Pledgor,
and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
11. ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) The
Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent of the Administrative Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Pledgor and in the name of the
Pledgor or in the Administrative Agent's own name, from time to time in the
Administrative Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all necessary and appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done pursuant to the power of attorney granted in paragraph .
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
12. DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar securities and property for its own account, except that the
Administrative Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits. Neither the
Administrative Agent, any Lender nor any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent for the benefit of the Lenders under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
<PAGE> 9
9
14. AUTHORITY OF ADMINISTRATIVE AGENT. The Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Pledgor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Pledgor nor any
Issuer shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
15. NOTICES. All notices, requests and demands to or upon the
Administrative Agent or the Pledgor to be effective shall be in writing (or by
telex, fax or similar electronic transfer confirmed in writing) and shall be
deemed to have been duly given or made (1) when delivered by hand or (2) if
given by mail, when deposited in the mails by certified mail, return receipt
requested, or (3) if by telex, fax or similar electronic transfer, when sent and
receipt has been confirmed, addressed to the Administrative Agent or the Pledgor
at its address or transmission number for notices provided in subsection 11.2 of
the Credit Agreement. The Administrative Agent and the Pledgor may change their
addresses and transmission numbers for notices by notice in the manner provided
in this Section.
16. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent, provided that any provision of this Agreement may be
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 17(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be
<PAGE> 10
10
construed as a bar to any right or remedy which the Administrative Agent or such
Lender would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
20. GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be duly executed and delivered as of the date first above written.
HOMESIDE LENDING, INC.
By:
-----------------------------------
Title:
THE CHASE MANHATTAN BANK
By:
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Title:
<PAGE> 11
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated HomeSide Pledge Agreement dated January 31, 1997, made by HomeSide
Lending, Inc. for the benefit of the Administrative Agent and the Lenders (the
"BORROWER PLEDGE AGREEMENT"). The undersigned agrees for the benefit of the
Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Borrower Pledge
Agreement and will comply with such terms insofar as such terms are applicable
to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in paragraph 5(a) of
the Borrower Pledge Agreement.
3. The terms of paragraph 9(c) of the Borrower Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of Section 9 of the Borrower Pledge
Agreement.
[NAME OF ISSUER]
By
--------------------------------------
Title
-----------------------------------
Address for Notices:
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-----------------------------------------
Telex:
-----------------------------------
Fax:
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<PAGE> 12
SCHEDULE 1
TO BORROWER
PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock Stock Certificate No. Number of Shares
------ -------------- --------------------- ----------------
<PAGE> 1
EXHIBIT 10.26
FORM OF BMC PLEDGE AGREEMENT
AMENDED AND RESTATED BMC PLEDGE AGREEMENT, dated as of January 31, 1997
(this "BMC PLEDGE AGREEMENT"), made by HOMESIDE HOLDINGS, INC., a Florida
corporation (formerly known as Barnett Mortgage Company; the "PLEDGOR"), in
favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders parties to the Amended and Restated
Credit Agreement, dated as of January 31, 1997 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among (i)
HOMESIDE LENDING, INC., a Florida corporation, and HONOLULU MORTGAGE COMPANY,
INC., a Hawaii corporation, as Borrowers (collectively, the "BORROWERS"), (ii)
the several banks and other financial institutions from time to time parties
thereto (collectively, the "LENDERS"), (iii) the Lenders from time to time
designated as Balance Lenders pursuant to subsection 11.8 of the Credit
Agreement (in such capacity, collectively, the "BALANCE LENDERS"), (iv) THE
FIRST NATIONAL BANK OF BOSTON, as Collateral Agent, and (v) the Administrative
Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Pledgor in respect of the Existing
Credit Agreement are secured pursuant to, INTER ALIA, the BMC Pledge Agreement,
dated as of January 31, 1997 (the "EXISTING BMC PLEDGE AGREEMENT") among the
parties to this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans that
the Existing BMC Pledge Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing BMC Pledge Agreement shall be
amended and restated in its entirety as follows:
<PAGE> 2
2
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Amended and Restated BMC Pledge Agreement, as the
same may be amended, modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in paragraph 8(a).
"ISSUER": the company identified on SCHEDULE 1 attached hereto as the
issuer of the Pledged Stock.
"OBLIGATIONS": as defined in the BMC Guarantee.
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any nature
whatsoever that may be issued or granted by the Issuer to the Pledgor while this
Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1)
of the Code in effect in the State of New York on the date hereof and, in any
event, shall include, without limitation, all dividends or other income from the
Pledged Stock, collections thereon or distributions with respect thereto.
"SECURED OBLIGATIONS": the collective reference to (a) the Obligations
and (b) all obligations and liabilities of the Pledgor which may arise under or
in connection with this Agreement or any other Loan Document to which the
Pledgor is a party, whether on account of reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Administrative Agent or to the Lenders
that are required to be paid by the Pledgor pursuant to the terms of this
Agreement or any other Loan Document to which the Pledgor is a party).
"SECURITIES ACT": the Securities Act of 1933, as amended.
<PAGE> 3
3
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers to
the Administrative Agent, for the ratable benefit of the Lenders, all the
Pledged Stock and hereby grants to the Administrative Agent, for the ratable
benefit of the Lenders, a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the Secured
Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Administrative
Agent of each certificate representing one or more shares of Pledged Stock, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Administrative Agent so requests,
signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants
that:
(a) The Pledgor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the
security interest in the Collateral pursuant to, this Agreement and has taken
all necessary corporate action to authorize its execution, delivery and
performance of, and grant of the security interest in the Collateral pursuant
to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of
the Pledgor, enforceable in accordance with its terms, and upon delivery to the
Administrative Agent of the stock certificates evidencing the Pledged Stock, the
security interest created pursuant to this Agreement will constitute a valid,
perfected first priority security interest in the Collateral, enforceable in
accordance with its terms against all creditors of the Pledgor and any Persons
purporting to purchase any Collateral from the Pledgor, except in each case as
enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
(c) The execution, delivery and performance of this Agreement will not
violate any provision of any Requirement of Law or Contractual Obligation of the
Pledgor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Pledgor pursuant to any Requirement of Law or
Contractual Obligation of the Pledgor, except the security interest created by
this Agreement.
<PAGE> 4
4
(d) No consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of the
Pledgor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor or against any of its properties
or revenues with respect to this Agreement or any of the transactions
contemplated hereby.
(f) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of the Issuer.
(g) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(h) The Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock, free of any and all Liens or options in
favor of, or claims of, any other Person, except the security interest created
by this Agreement, other than the Liens under the Second Lien Pledge Agreements
to which the Pledgor is a party as in effect on the Closing Date.
5. COVENANTS. The Pledgor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for, any shares of the Pledged Stock, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Administrative Agent and
the Lenders, hold the same in trust for the Administrative Agent and the Lenders
and deliver the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by the Pledgor to the Administrative Agent, if required,
together with an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to the
terms hereof, as additional collateral security for the Secured Obligations. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Secured
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Stock or any property shall be distributed upon or with
respect to the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of the Issuer or pursuant to the reorganization
thereof, the property
<PAGE> 5
5
so distributed shall be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Secured Obligations. If any
sums of money or property so paid or distributed in respect of the Pledged Stock
shall be received by the Pledgor, the Pledgor shall, until such money or
property is paid or delivered to the Administrative Agent, hold such money or
property in trust for the Lenders, segregated from other funds of the Pledgor,
as additional collateral security for the Secured Obligations.
(b) Without the prior written consent of the Administrative Agent, the
Pledgor will not (1) vote to enable, or take any other action to permit, the
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of the Issuer,
(2) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, (3) create, incur or permit to exist any
Lien or option in favor of, or any claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the security interests
created by this Agreement and the other Security Documents or (4) enter into any
agreement or undertaking restricting the right or ability of the Pledgor or the
Administrative Agent to sell, assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first priority, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Administrative
Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Administrative Agent may reasonably request for the
purposes of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Administrative Agent, duly
endorsed in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Agreement.
(d) The Pledgor shall pay, and save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the Pledgor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section , the Pledgor shall be permitted to
receive all cash dividends paid in the normal course of business of the Issuer
and consistent with past practice in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock;
PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or
other action taken which, in the Administrative
<PAGE> 6
6
Agent's reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, the Notes, this Agreement or any other Loan Document.
7. RIGHTS OF THE LENDERS AND THE ADMINISTRATIVE AGENT. (a) All money
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
in a Collateral Account. All Proceeds while held by the Administrative Agent in
a Collateral Account (or by the Pledgor in trust for the Administrative Agent
and the Lenders) shall continue to be held as collateral security for all the
Secured Obligations and shall not constitute payment thereof until applied as
provided in paragraph 8(a).
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the Pledgor, (1) the Administrative Agent shall have the right to receive any
and all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Secured Obligations in such order as the Administrative Agent may
determine, and (2) all shares of the Pledged Stock shall be registered in the
name of the Administrative Agent or its nominee, and the Administrative Agent or
its nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
the Issuer or otherwise and (B) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of the Issuer or upon the
exercise by the Pledgor or the Administrative Agent of any right, privilege or
option pertaining to such shares of the Pledged Stock, and in connection
therewith, the right to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account for property actually
received by it, but the Administrative Agent shall have no duty to the Pledgor
to exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Administrative Agent's election, the
Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Secured Obligations in such order as the
Administrative Agent may elect.
(b) If an Event of Default shall occur and be continuing, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Administrative Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except
<PAGE> 7
7
any notice required by law referred to below) to or upon the Pledgor or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or office
of the Administrative Agent or any Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived and released. The Administrative Agent shall apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the exercise of the rights of the Administrative
Agent and the Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Administrative Agent, to the
payment in whole or in part of the Secured Obligations, in such order as the
Administrative Agent may elect, and only after such application and after the
payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Administrative Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.
(c) The Pledgor waives and agrees not to assert any rights or
privileges which it may acquire under Section 9-112 of the Code. The Pledgor
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of Collateral are insufficient to pay the Secured Obligations and
the fees and disbursements of any attorneys employed by the Administrative Agent
or any Lender to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 8(b), and if in the sole determination of the
Administrative Agent it is necessary or advisable to have the Pledged Stock, or
that portion thereof to be sold, registered under the provisions of the
Securities Act, the Pledgor will cause the Issuer to (1) execute and deliver,
and cause the directors and officers of the Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (2) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year
<PAGE> 8
8
from the date of the first public offering of the Pledged Stock, or that portion
thereof to be sold, and (3) to make all amendments thereto and/or to the related
prospectus that are permitted by law which, in the opinion of the Administrative
Agent, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. The Pledgor agrees to cause the Issuer to comply
with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Administrative Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
(b) The Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Agreement, without any other or further instructions from the Pledgor,
and the Pledgor agrees that the Issuer shall be fully protected in so complying.
11. ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) The
Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent of the Administrative Agent, with full power of
substitution, as its true and lawful attorney-in-fact
<PAGE> 9
9
with full irrevocable power and authority in the place and stead of the Pledgor
and in the name of the Pledgor or in the Administrative Agent's own name, from
time to time in the Administrative Agent's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all necessary and
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
including, without limitation, any financing statements, endorsements,
assignments or other instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done pursuant to the power of attorney granted in paragraph .
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
12. DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar securities and property for its own account, except that the
Administrative Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits. Neither the
Administrative Agent, any Lender nor any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent for the benefit of the Lenders under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. AUTHORITY OF ADMINISTRATIVE AGENT. The Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Pledgor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Pledgor nor the
Issuer shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
<PAGE> 10
10
15. NOTICES. All notices, requests and demands to or upon the
Administrative Agent or the Pledgor to be effective shall be in writing (or by
telex, fax or similar electronic transfer confirmed in writing) and shall be
deemed to have been duly given or made (a) when delivered by hand or (b) if
given by mail, when deposited in the mails by certified mail, return receipt
requested, or (c) if by telex, fax or similar electronic transfer, when sent and
receipt has been confirmed, addressed as follows:
(1) if to the Administrative Agent, at its address or transmission
number for notices provided in subsection 11.2 of the Credit Agreement; and
(2) if to the Pledgor, at its address or transmission number for
notices set forth under its signature below and to:
James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: 617-951-1295.
The Administrative Agent and the Pledgor may change their addresses and
transmission numbers for notices by notice in the manner provided in this
Section.
16. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent, PROVIDED that any provision of this Agreement may be
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 17(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be
<PAGE> 11
11
construed as a bar to any right or remedy which the Administrative Agent or such
Lender would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
20. GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be duly executed and delivered as of the date first above written.
HOMESIDE HOLDINGS, INC.
By
-----------------------------------
Title
--------------------------------
THE CHASE MANHATTAN BANK
By
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Title
--------------------------------
<PAGE> 12
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated BMC Pledge Agreement, dated as of January 31, 1997, made by
HomeSide Holdings, Inc., for the benefit of the Administrative Agent and the
Lenders (the "BMC PLEDGE AGREEMENT"). The undersigned agrees for the benefit of
the Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the BMC Pledge
Agreement and will comply with such terms insofar as such terms are applicable
to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in paragraph 5(a) of
the BMC Pledge Agreement.
3. The terms of paragraph 9(c) of the BMC Pledge Agreement shall apply
to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section of the BMC Pledge Agreement.
HOMESIDE LENDING, INC.
By
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Title
-----------------------------
Address for Notices:
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----------------------------------
Telex:
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Fax:
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<PAGE> 13
SCHEDULE 1
TO BMC PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock Stock Certificate No. Number of Shares
------ -------------- --------------------- ----------------
<PAGE> 1
EXHIBIT 10.28
FORM OF HOLDINGS GUARANTEE
AMENDED AND RESTATED HOLDINGS GUARANTEE, dated as of January 31, 1997
(this "GUARANTEE"), made by HOMESIDE, INC., a Delaware corporation (the
"GUARANTOR"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in
such capacity, the "ADMINISTRATIVE AGENT") for the lenders (the "LENDERS")
parties to the Amended and Restated Credit Agreement, dated as of January 31,
1997 (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among HOMESIDE LENDING, INC. ("HOMESIDE") and HONOLULU
MORTGAGE COMPANY, INC. ("HONOMO"), as Borrowers (collectively, the "BORROWERS"),
the Lenders, THE FIRST NATIONAL BANK OF BOSTON, as Collateral Agent, and the
Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Borrower under the Existing Credit
Agreement are guaranteed pursuant to the Holdings Guarantee, dated as of May 31,
1996 (the "EXISTING HOLDINGS GUARANTEE") made by Holdings in favor of the
Administrative Agent;
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrowers under the Credit Agreement that
the Existing Holdings Guarantee shall be amended and restated as provided
herein; and
WHEREAS, HonoMo is a wholly owned subsidiary of HomeSide; HomeSide is
the wholly owned subsidiary of Barnett Mortgage Company, which in turn is a
wholly owned subsidiary of the Guarantor; and it is to the advantage of the
Guarantor that the Lenders make the Loans to the Borrower;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing Holdings Guarantee shall be
amended and restated in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, capitalized terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
<PAGE> 2
2
(b) As used herein, "OBLIGATIONS" means, collectively, the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of the Borrowers to the Administrative Agent, the Collateral Agent and the
Lenders (including, without limitation, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to either Borrower
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, the Notes, the other Loan
Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Administrative Agent or
to the Lenders that are required to be paid by the Borrowers or the Guarantor
pursuant to the terms of the Credit Agreement or this Guarantee or any other
Loan Document).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GUARANTEE. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrowers when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(b) The Guarantor further agrees to pay any and all reasonable expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Administrative Agent or any Lender in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantor under this Guarantee. This
Guarantee shall remain in full force and effect until the Obligations are paid
in full and the Commitments are terminated, notwithstanding that from time to
time prior thereto the Borrowers may be free from any Obligations.
3. RIGHT OF SET-OFF. The Administrative Agent, the Collateral Agent and
each Lender is hereby irrevocably authorized at any time and from time to time
without notice to the Guarantor, any such notice being expressly waived by the
Guarantor, upon any amount of the Obligations becoming due and payable (whether
at stated maturity, by acceleration or otherwise), to set off and appropriate
and apply any and all deposits (general or special, time or demand,
<PAGE> 3
3
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent, the Collateral Agent or such Lender to or for the credit
or the account of the Guarantor, or any part thereof in such amounts as the
Administrative Agent, the Collateral Agent or such Lender may elect, against or
on account of the obligations and liabilities of the Guarantor to the
Administrative Agent, the Collateral Agent or such Lender hereunder and claims
of every nature and description of the Administrative Agent or such Lender
against the Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any other Loan Document or otherwise, as the
Administrative Agent, the Collateral Agent or such Lender may elect, whether or
not the Administrative Agent, the Collateral Agent or such Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent, the Collateral Agent and each
Lender shall notify the Guarantor promptly of any such set-off and the
application made by the Administrative Agent, the Collateral Agent or such
Lender, as the case may be, of the proceeds thereof; PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent, the Collateral Agent and
each Lender under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the
Administrative Agent or such Lender may have.
4. NO SUBROGATION. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any set-off or application of funds of the Guarantor by
the Administrative Agent or any Lender, the Guarantor shall not be entitled to
exercise any rights to be subrogated to any of the rights of the Administrative
Agent or any Lender against the Borrowers or any other Guarantor or against any
collateral security or guarantee or right of offset held by the Administrative
Agent or any Lender for the payment of the Obligations, nor shall the Guarantor
seek or be entitled to seek any contribution or reimbursement from the Borrowers
or any other Loan Party in respect of payments made by the Guarantor hereunder,
until all amounts owing to the Administrative Agent and the Lenders by the
Borrowers on account of the Obligations are paid in full and the Commitments are
terminated. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Guarantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to
the Administrative Agent in the exact form received by the Guarantor (duly
indorsed by the Guarantor to the Administrative Agent, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
the Administrative Agent may determine.
5. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender may be rescinded by the Administrative
Agent or such Lender, and any of the Obligations continued, and the Obligations,
or the liability of any other party upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from
<PAGE> 4
4
time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and the Credit Agreement, any Notes, and the other Loan
Documents and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Administrative Agent (or the Required Lenders, as the case may be) may deem
advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the Administrative Agent or any Lender for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Administrative Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guarantee or any property subject
thereto. When making any demand hereunder against the Guarantor, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on the Borrowers or any other guarantor, and any failure
by the Administrative Agent or any Lender to make any such demand or to collect
any payments from the Borrowers or any such other guarantor or any release of
the Borrowers or such other guarantor shall not relieve the Guarantor of its
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Lender against the Guarantor. For the purposes hereof "demand"
shall include the commencement and continuance of any legal proceedings.
6. GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Borrowers or the Guarantor, on the one
hand, and the Administrative Agent and the Lenders, on the other, shall likewise
be conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrowers or the
Guarantor with respect to the Obligations. This Guarantee shall be construed as
a continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Credit Agreement, any
Note, or any other Loan Document, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Administrative Agent or any Lender, (b)
any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrowers or any other Loan Party against the Administrative Agent or any
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrowers or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrowers for
the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in
any other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Administrative Agent and any Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrowers or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any failure
by the Administrative Agent or any Lender to pursue such other rights or
remedies or
<PAGE> 5
5
to collect any payments from the Borrowers or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrowers or any such other Person or of
any such collateral security, guarantee or right of offset, shall not relieve
the Guarantor of any liability hereunder, and shall not impair or affect the
rights and remedies, whether express, implied or available as a matter of law,
of the Administrative Agent or any Lender against the Guarantor. This Guarantee
shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and its successors and assigns, and
shall inure to the benefit of the Administrative Agent and the Lenders, and
their respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Guarantee shall have
been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrowers may be free from any Obligations.
7. REINSTATEMENT. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of either Borrower or any other Loan
Party or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, either Borrower, any other
Loan Party or any substantial part of its property, or otherwise, all as though
such payments had not been made.
8. PAYMENTS. The Guarantor hereby agrees that the Obligations will be
paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars
at the office of the Administrative Agent located at 270 Park Avenue, New York,
New York 10017.
9. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants to the Administrative Agent and the Lenders that:
(a) the Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged;
(b) the Guarantor has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, this
Guarantee, and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Guarantee;
(c) this Guarantee constitutes a legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the enforcement of creditors' rights
generally, general equitable principles and an implied covenant of good faith
and fair dealing;
<PAGE> 6
6
(d) the execution, delivery and performance of this Guarantee will not
violate any provision of any Requirement of Law or Contractual Obligation of the
Guarantor and will not result in or require the creation or imposition of any
Lien on any of the properties or revenues of the Guarantor pursuant to any
Requirement of Law or Contractual Obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of the
Guarantor) is required in connection with the execution, delivery, performance,
validity or enforceability of this Guarantee; and
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or against any of its
properties or revenues (i) with respect to this Guarantee or any of the
transactions contemplated hereby or (ii) which has any reasonable likelihood of
having a material adverse effect on the business, operations, property or
financial or other condition of the Guarantor.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each borrowing
by a Borrower under the Credit Agreement on and as of such date of borrowing as
though made hereunder on and as of such date.
10. COVENANTS. The Guarantor hereby covenants and agrees with the
Administrative Agent and the Lenders that, from and after the date of this
Guarantee until the Obligations are paid in full and the Commitments are
terminated:
(a) The Guarantor shall take, or shall refrain from taking, as the case
may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Section 7 or 8 of
the Credit Agreement, and so that no Default or Event of Default, is caused by
any act or failure to act of the Guarantor.
(b) The Guarantor shall not incur any Indebtedness or Guarantee
Obligations, or make any investments, loans or advances to any Person, or
conduct, transact or otherwise engage, or commit to transact, conduct or
otherwise engage, in any business or operations other than (i) the ownership of
the capital stock of Barnett Mortgage Company, and the exercise of rights and
performance of obligations in connection therewith, (ii) Indebtedness under the
Holdings Notes (including the obligations thereunder to pay make-whole or
prepayment premiums), (iii) the entry into, and exercise of rights and
performance of obligations in respect of this Guarantee, the Holdings Pledge
Agreement, the Second Lien Pledge Agreement to which it is a party, equity
subscription agreements, registration rights agreements, voting and other
stockholder agreements, engagement letters, underwriting agreements and other
agreements in respect of its equity securities or any offering, issuance or sale
thereof, (iv) the offering, issuance and sale of its equity securities to the
extent such offering, issuance or sale does not constitute a Change of Control
or would be otherwise inconsistent with the provisions of the Credit Agreement,
(v) the entry into, and exercise of rights and performance of obligations in
respect of
<PAGE> 7
7
indentures, engagement letters, underwriting agreements and other agreements in
respect of Indebtedness permitted under clause (ii) above or any offering,
issuance or sale thereof, and the offering, issuance and sale of its debt
securities representing such Indebtedness, (vi) the filing of registration
statements, and compliance with applicable reporting and other obligations,
under federal, state or other securities laws, (vii) the listing of its equity
securities and compliance with applicable reporting and other obligations in
connection therewith, (viii) the retention of transfer agents, private placement
agents, underwriters, counsel, accountants and other advisors and consultants,
(ix) the performance of obligations under in and compliance with its certificate
of incorporation and by-laws, or any applicable law, ordinance, regulation,
rule, order, judgment, decree or permit, including, without limitation, as a
result of or in connection with the activities of the Borrowers, (x) the
incurrence and payment of any taxes for which it may be liable and (xi) other
activities directly related to the foregoing.
(c) The Guarantor shall not amend, modify or change, or consent or
agree to any amendment, modification or change to any of the terms of (i) the
Holdings Notes or the Indenture related thereto (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest thereon or which would result in terms and
conditions thereof that are no less favorable to Holdings or the Borrower or to
the interests of the Lenders than the terms and conditions thereof in effect
immediately prior to giving effect to such amendment, modification or change) or
(ii) any of the material terms of the BBMC Stock Purchase Agreement, the BMC
Stock Purchase Agreement or the Stockholder Agreement, in each case as in effect
on the Closing Date.
11. AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Guarantee
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, right, request, judgment
or other right or remedy provided for herein or resulting or arising out of this
Guarantee shall, as between the Administrative Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and the Guarantor shall not be under
any obligation, or entitlement, to make any inquiry respecting such authority.
12. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or the Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (i) when delivered by hand
or (ii) if given by mail, when deposited in the mails by certified mail, return
receipt requested, or (iii) if by telex, fax or similar electronic transfer,
when sent and receipt has been confirmed, addressed as follows:
(a) if to the Administrative Agent or any Lender, at its address or
transmission number for notices provided in subsection 11.2 of the Credit
Agreement; and
<PAGE> 8
8
(b) if to the Guarantor, at its address or transmission number for
notices set forth under its signature below.
The Administrative Agent, each Lender and the Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
13. SEVERABILITY. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. INTEGRATION. This Guarantee represents the entire agreement of the
Guarantor with respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein.
15. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Administrative Agent, PROVIDED that any provision of this Guarantee may
be waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 15(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
16. SECTION HEADINGS. The section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
17. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
<PAGE> 9
9
18. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
19. SUBMISSION TO JURISDICTION; WAIVERS. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and any other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Guarantor at its address set forth under its signature below or at such
other address of which the Administrative Agent shall have been notified
pursuant hereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
20. WAIVERS OF JURY TRIAL. THE GUARANTOR AND, BY ACCEPTANCE HEREOF, THE
ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND THE LENDERS, HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
HOMESIDE, INC.
<PAGE> 10
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By
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Title
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Address for Notices:
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Telex:
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Fax:
------------------------------
THE CHASE MANHATTAN BANK
By
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Title
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<PAGE> 1
EXHIBIT 10.29
FORM OF HOMESIDE GUARANTEE
AMENDED AND RESTATED HOMESIDE GUARANTEE, dated as of January 31,
1997 (this "HOMESIDE GUARANTEE"), made by HOMESIDE LENDING, INC., a Florida
corporation (the "GUARANTOR"), in favor of THE CHASE MANHATTAN BANK, as
Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT") for the
lenders (the "LENDERS") parties to the Amended and Restated Credit Agreement,
dated as of January 31, 1997 (as amended, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among the Guarantor and HONOLULU
MORTGAGE COMPANY, INC. ("HONOMO") as Borrowers (collectively, the "BORROWERS"),
the Lenders, THE FIRST NATIONAL BANK OF BOSTON, as Collateral Agent, and the
Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of HonoMo under the Existing Credit Agreement
are guaranteed pursuant to the HomeSide Guarantee, dated as of May 31, 1996 (the
"EXISTING HOMESIDE GUARANTEE") made by the Guarantor in favor of the
Administrative Agent;
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrowers under the Credit Agreement that
the Existing HomeSide Guarantee shall be amended and restated as provided
herein; and
WHEREAS, HonoMo is a wholly-owned subsidiary of the Guarantor, and it
is to the advantage of the Guarantor that the Lenders make the Loans to HonoMo;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing HomeSide Guarantee shall be
amended and restated in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, capitalized terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
<PAGE> 2
2
(b) As used herein, "OBLIGATIONS" means, collectively, the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of HonoMo to the Administrative Agent, the Collateral Agent and the Lenders
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to either Borrower whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Notes, the other Loan Documents or any other
document made, delivered or given in connection therewith, in each case whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders that are
required to be paid by HonoMo or the Guarantor pursuant to the terms of the
Credit Agreement or this HomeSide Guarantee or any other Loan Document).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this HomeSide Guarantee shall refer to this HomeSide
Guarantee as a whole and not to any particular provision of this HomeSide
Guarantee, and section and paragraph references are to this HomeSide Guarantee
unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GUARANTEE. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by HonoMo when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
(b) The Guarantor further agrees to pay any and all reasonable expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Administrative Agent or any Lender in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantor under this HomeSide Guarantee.
This HomeSide Guarantee shall remain in full force and effect until the
Obligations are paid in full and the Commitments are terminated, notwithstanding
that from time to time prior thereto HonoMo may be free from any Obligations.
3. RIGHT OF SET-OFF. The Administrative Agent, the Collateral Agent and
each Lender is hereby irrevocably authorized at any time and from time to time
without notice to the Guarantor, any such notice being expressly waived by the
Guarantor, upon any amount of the Obligations becoming due and payable (whether
at stated maturity, by acceleration or otherwise),
<PAGE> 3
3
to set off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent, the Collateral Agent or such Lender to or for
the credit or the account of the Guarantor, or any part thereof in such amounts
as the Administrative Agent, the Collateral Agent or such Lender may elect,
against or on account of the obligations and liabilities of the Guarantor to the
Administrative Agent, the Collateral Agent or such Lender hereunder and claims
of every nature and description of the Administrative Agent or such Lender
against the Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any other Loan Document or otherwise, as the
Administrative Agent, the Collateral Agent or such Lender may elect, whether or
not the Administrative Agent, the Collateral Agent or such Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent, the Collateral Agent and each
Lender shall notify the Guarantor promptly of any such set-off and the
application made by the Administrative Agent, the Collateral Agent or such
Lender, as the case may be, of the proceeds thereof; PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent, the Collateral Agent and
each Lender under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the
Administrative Agent or such Lender may have.
4. NO SUBROGATION. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any set-off or application of funds of the Guarantor by
the Administrative Agent or any Lender, the Guarantor shall not be entitled to
exercise any rights to be subrogated to any of the rights of the Administrative
Agent or any Lender against HonoMo or any other Guarantor or against any
collateral security or guarantee or right of offset held by the Administrative
Agent or any Lender for the payment of the Obligations, nor shall the Guarantor
seek or be entitled to seek any contribution or reimbursement from HonoMo or any
other Loan Party in respect of payments made by the Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by HonoMo on
account of the Obligations are paid in full and the Commitments are terminated.
If any amount shall be paid to the Guarantor on account of such subrogation
rights at any time when all of the Obligations shall not have been paid in full,
such amount shall be held by the Guarantor in trust for the Administrative Agent
and the Lenders, segregated from other funds of the Guarantor, and shall,
forthwith upon receipt by the Guarantor, be turned over to the Administrative
Agent in the exact form received by the Guarantor (duly indorsed by the
Guarantor to the Administrative Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine.
5. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender
<PAGE> 4
4
may be rescinded by the Administrative Agent or such Lender, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and the
Credit Agreement, any Notes, and the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, as the case may be) may deem advisable from time
to time, and any collateral security, guarantee or right of offset at any time
held by the Administrative Agent or any Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for this HomeSide Guarantee or any property subject thereto. When
making any demand hereunder against the Guarantor, the Administrative Agent or
any Lender may, but shall be under no obligation to, make a similar demand on
HonoMo or any other guarantor, and any failure by the Administrative Agent or
any Lender to make any such demand or to collect any payments from HonoMo or any
such other guarantor or any release of HonoMo or such other guarantor shall not
relieve the Guarantor of its obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a matter of
law, of the Administrative Agent or any Lender against the Guarantor. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal proceedings.
6. GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this HomeSide Guarantee or acceptance of this HomeSide
Guarantee; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon this HomeSide Guarantee; and all dealings between
HonoMo or the Guarantor, on the one hand, and the Administrative Agent and the
Lenders, on the other, shall likewise be conclusively presumed to have been had
or consummated in reliance upon this HomeSide Guarantee. The Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon HonoMo or the Guarantor with respect to the Obligations.
This HomeSide Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of the Credit Agreement, any Note, or any other
Loan Document, any of the Obligations or any other collateral security therefor
or guarantee or right of offset with respect thereto at any time or from time to
time held by the Administrative Agent or any Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by HonoMo or any other Loan Party against
the Administrative Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of HonoMo or the Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of HonoMo for the Obligations, or of the Guarantor under this HomeSide
<PAGE> 5
5
Guarantee, in bankruptcy or in any other instance. When pursuing its rights and
remedies hereunder against the Guarantor, the Administrative Agent and any
Lender may, but shall be under no obligation to, pursue such rights and remedies
as it may have against HonoMo or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any Lender to pursue
such other rights or remedies or to collect any payments from HonoMo or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of HonoMo or any such other
Person or of any such collateral security, guarantee or right of offset, shall
not relieve the Guarantor of any liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any Lender against the Guarantor.
This HomeSide Guarantee shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantor and its
successors and assigns thereof, and shall inure to the benefit of the
Administrative Agent and the Lenders, and their respective successors,
indorsees, transferees and assigns, until all the Obligations and the
obligations of the Guarantor under this HomeSide Guarantee shall have been
satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
HonoMo may be free from any Obligations.
7. REINSTATEMENT. This HomeSide Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of either
Borrower or any other Loan Party or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for,
either Borrower or any other Loan Party or any substantial part of its property,
or otherwise, all as though such payments had not been made.
8. PAYMENTS. The Guarantor hereby agrees that the Obligations will be
paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars
at the office of the Administrative Agent located at 270 Park Avenue, New York,
New York 10017.
9. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants to the Administrative Agent and the Lenders that:
(a) the Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged;
(b) the Guarantor has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, this
HomeSide Guarantee, and has
<PAGE> 6
6
taken all necessary corporate action to authorize its execution, delivery and
performance of this HomeSide Guarantee;
(c) this HomeSide Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an implied
covenant of good faith and fair dealing;
(d) the execution, delivery and performance of this HomeSide Guarantee
will not violate any provision of any Requirement of Law or Contractual
Obligation of the Guarantor and will not result in or require the creation or
imposition of any Lien on any of the properties or revenues of the Guarantor
pursuant to any Requirement of Law or Contractual Obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of the
Guarantor) is required in connection with the execution, delivery, performance,
validity or enforceability of this HomeSide Guarantee; and
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or against any of its
properties or revenues (i) with respect to this HomeSide Guarantee or any of the
transactions contemplated hereby or (ii) which has any reasonable likelihood of
having a material adverse effect on the business, operations, property or
financial or other condition of the Guarantor.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each borrowing
by a Borrower under the Credit Agreement on and as of such date of borrowing as
though made hereunder on and as of such date.
10. AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this HomeSide
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this HomeSide Guarantee shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Guarantor, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and the Guarantor shall
not be under any obligation, or entitlement, to make any inquiry respecting such
authority.
<PAGE> 7
7
11. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or the Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (i) when delivered by hand
or (ii) if given by mail, when deposited in the mails by certified mail, return
receipt requested, or (iii) if by telex, fax or similar electronic transfer,
when sent and receipt has been confirmed, addressed to such Person at its
address or transmission number for notices provided in subsection 11.2 of the
Credit Agreement.
The Administrative Agent, each Lender and the Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
12. SEVERABILITY. Any provision of this HomeSide Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. INTEGRATION. This HomeSide Guarantee represents the entire
agreement of the Guarantor with respect to the subject matter hereof and there
are no promises or representations by the Administrative Agent or any Lender
relative to the subject matter hereof not reflected herein.
14. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this HomeSide Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Guarantor and the Administrative Agent, provided that any provision of this
HomeSide Guarantee may be waived by the Administrative Agent and the Lenders in
a letter or agreement executed by the Administrative Agent or by telex or
facsimile transmission from the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 14(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
<PAGE> 8
8
15. SECTION HEADINGS. The section headings used in this HomeSide
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. SUCCESSORS AND ASSIGNS. This HomeSide Guarantee shall be binding
upon the successors and assigns of the Guarantor and shall inure to the benefit
of the Administrative Agent and the Lenders and their successors and assigns.
17. GOVERNING LAW. THIS HOMESIDE GUARANTEE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, each of the undersigned has caused this HomeSide
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
HOMESIDE LENDING, INC.
By
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Title
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Address for Notices:
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Telex:
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Fax:
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THE CHASE MANHATTAN BANK
By
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Title
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<PAGE> 1
EXHIBIT 10.30
FORM OF SUBSIDIARIES GUARANTEE
AMENDED AND RESTATED SUBSIDIARIES GUARANTEE, dated as of January 31,
1997 (this "GUARANTEE"), made by each of the corporations that are signatories
hereto (the "GUARANTORS"), in favor of THE CHASE MANHATTAN BANK, as
Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT") for the
lenders (the "LENDERS") parties to the Amended and Restated Credit Agreement,
dated as of January 31 , 1997 (as amended, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among HOMESIDE LENDING, INC.
("HOMESIDE") and HONOLULU MORTGAGE COMPANY, INC. ("HONOMO"), as Borrowers
(collectively, the "BORROWERS"), the Lenders, THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent, and the Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Borrower under the Existing Credit
Agreement are guaranteed pursuant to the Subsidiaries Guarantee, dated as of May
31, 1996 (the "EXISTING SUBSIDIARIES GUARANTEE") made by the Subsidiaries of
HomeSide parties thereto in favor of the Administrative Agent;
WHEREAS, HomeSide owns directly or indirectly all of the issued and
outstanding stock of each Guarantor;
WHEREAS, the Borrowers and the Guarantors are engaged in related
businesses, and each Guarantor will derive substantial direct and indirect
benefit from the making of the Loans; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrowers under the Credit Agreement that
the Existing Subsidiaries Guarantee shall be amended and restated as provided
herein;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing Subsidiaries Guarantee shall
be amended and restated as follows:
<PAGE> 2
2
1. DEFINED TERMS. (a) Unless otherwise defined herein, capitalized terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) As used herein, "OBLIGATIONS" means, collectively, the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of the Borrowers to the Administrative Agent, the Collateral Agent and the
Lenders (including, without limitation, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to either Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter incurred, which may arise under, out of,
or in connection with, the Credit Agreement, any Notes, the other Loan Documents
or any other document made, delivered or given in connection therewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders that are
required to be paid by the Borrowers or the Guarantors pursuant to the terms of
the Credit Agreement or this Guarantee or any other Loan Document).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GUARANTEE (a) Subject to the provisions of paragraph , each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Administrative Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrowers when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all reasonable
expenses (including, without limitation, all fees and disbursements of counsel)
which may be paid or incurred by the Administrative Agent or any Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or
<PAGE> 3
3
enforcing any rights with respect to, or collecting against, such Guarantor
under this Guarantee. This Guarantee shall remain in full force and effect until
the Obligations are paid in full and the Commitments are terminated,
notwithstanding that from time to time prior thereto the Borrowers may be free
from any Obligations.
(d) Each Guarantor agrees that the Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
(e) No payment or payments made by either Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Administrative Agent or any Lender from either Borrower, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment or payments other than
payments made by such Guarantor in respect of the Obligations or payments
received or collected from such Guarantor in respect of the Obligations, remain
liable for the Obligations up to the maximum liability of such Guarantor
hereunder until the Obligations are paid in full and the Commitments are
terminated.
(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Lender on
account of its liability hereunder, it will notify the Administrative Agent in
writing that such payment is made under this Guarantee for such purpose.
3. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section . The provisions of this
Section shall in no respect limit the obligations and liabilities of any
Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall
remain liable to the Administrative Agent and the Lenders for the full amount
guaranteed by such Guarantor hereunder.
4. RIGHT OF SET-OFF. Each Guarantor hereby irrevocably authorizes the
Administrative Agent, the Collateral Agent and each Lender at any time and from
time to time without notice to such Guarantor or any other Guarantor, any such
notice being expressly waived by each Guarantor, upon any amount of the
Obligations becoming due and payable (whether at stated maturity, by
acceleration or otherwise), to set off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Administrative Agent, the Collateral
Agent or such Lender to or for the credit or the account of such Guarantor, or
any part
<PAGE> 4
4
thereof in such amounts as the Administrative Agent, the Collateral Agent or
such Lender may elect, against or on account of the obligations and liabilities
of such Guarantor to the Administrative Agent, the Collateral Agent or such
Lender hereunder and claims of every nature and description of such Lender
against such Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any other Loan Document or otherwise, as the
Administrative Agent, the Collateral Agent such Lender may elect, whether or not
the Administrative Agent, the Collateral Agent or such Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent, the Collateral Agent and each
Lender shall notify such Guarantor promptly of any such set-off and the
application made by the Administrative Agent, the Collateral Agent or such
Lender,as the case maybe, of the proceeds thereof PROVIDED that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Administrative Agent, the Collateral Agent and each Lender
under this paragraph are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Administrative Agent, or
such Lender may have.
5. NO SUBROGATION. Notwithstanding any payment or payments made by any
of the Guarantors hereunder, or any set-off or application of funds of any of
the Guarantors by the Administrative Agent or any Lender, no Guarantor shall be
entitled to exercise any rights to be subrogated to any of the rights of the
Administrative Agent or any Lender against the Borrowers or any other Guarantor
or against any collateral security or guarantee or right of offset held by the
Administrative Agent or any Lender for the payment of the Obligations, nor shall
any Guarantor seek or be entitled to seek any contribution or reimbursement from
the Borrowers or any other Loan Party in respect of payments made by such
Guarantor hereunder, until all amounts owing to the Administrative Agent and the
Lenders by the Borrowers on account of the Obligations are paid in full and the
Commitments are terminated. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full, such amount shall be held by such Guarantor in trust
for the Administrative Agent and the Lenders, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned
over to the Administrative Agent in the exact form received by such Guarantor
(duly indorsed by such Guarantor to the Administrative Agent, if required), to
be applied against the Obligations, whether matured or unmatured, in such order
as the Administrative Agent may determine.
6. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender may be rescinded by the Administrative
Agent or such Lender, and any of the Obligations continued, and the Obligations,
or the liability of any other party upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Administrative Agent or any Lender, and the Credit Agreement, any Notes and
the other Loan Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or
<PAGE> 5
5
terminated, in whole or in part, as the Administrative Agent (or the Required
Lenders, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Guarantee or any property subject thereto. When making any demand hereunder
against any of the Guarantors, the Administrative Agent or any Lender may, but
shall be under no obligation to, make a similar demand on the Borrowers or any
other Guarantor or guarantor, and any failure by the Administrative Agent or any
Lender to make any such demand or to collect any payments from the Borrowers or
any such other Guarantor or guarantor or any release of the Borrowers or such
other Guarantor or guarantor shall not relieve any of the Guarantors in respect
of which a demand or collection is not made or any of the Guarantors not so
released of their several obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a matter of
law, of the Administrative Agent or any Lender against any of the Guarantors.
For the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
7. Guarantee Absolute and Unconditional. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Borrowers or any of the Guarantors, on
the one hand, and the Administrative Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrowers or any of the Guarantors with respect to the Obligations. Each
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Credit Agreement, any Note
or any other Loan Document, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Administrative Agent or any Lender, (b)
any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrowers or any other Loan Party against the Administrative Agent or any
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrowers or such Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrowers for
the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in
any other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Administrative Agent and any Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrowers or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any failure
by the Administrative Agent or any Lender to pursue such other rights or
remedies or to collect any payments from the Borrowers or any such other Person
or to realize upon any such collateral security or guarantee
<PAGE> 6
6
or to exercise any such right of offset, or any release of the Borrowers or any
such other Person or any such collateral security, guarantee or right of offset,
shall not relieve such Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Administrative Agent or any Lenders against such
Guarantor. This Guarantee shall remain in full force and effect and be binding
in accordance with and to the extent of its terms upon each Guarantor and the
successors and assigns thereof, and shall inure to the benefit of the
Administrative Agent and the Lenders, and their respective successors,
indorsees, transferees and assigns, until all the Obligations and the
obligations of each Guarantor under this Guarantee shall have been satisfied by
payment in full and the Commitments shall be terminated, notwithstanding that
from time to time during the term of the Credit Agreement the Borrowers may be
free from any Obligations.
8. REINSTATEMENT. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of either Borrower or any other Loan
Party, or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, either Borrower or any other
Loan Party or any substantial part of its property, or otherwise, all as though
such payments had not been made.
9. PAYMENTS. Each Guarantor hereby guarantees that payments hereunder
will be paid to the Administrative Agent without set-off or counterclaim in U.S.
Dollars at the office of the Administrative Agent located at 270 Park Avenue,
New York, New York 10017.
10. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents
and warrants to the Administrative Agent and the Lenders that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged;
(b) it has the corporate power and authority and the legal right to
execute and deliver, and to perform its obligations under, this Guarantee, and
has taken all necessary corporate action to authorize its execution, delivery
and performance of this Guarantee;
(c) this Guarantee constitutes a legal, valid and binding obligation of
such Guarantor enforceable in accordance with its terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the enforcement of creditors' rights
generally, general equitable principles and an implied covenant of good faith
and fair dealing;
(d) the execution, delivery and performance of this Guarantee will not
violate any provision of any Requirement of Law or Contractual Obligation of
such Guarantor and will not
<PAGE> 7
7
result in or require the creation or imposition of any Lien on any of the
properties or revenues of such Guarantor pursuant to any Requirement of Law or
Contractual Obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of such
Guarantor) is required in connection with the execution, delivery, performance,
validity or enforceability of this Guarantee; and
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of such
Guarantor, threatened by or against such Guarantor or against any of its
properties or revenues (1) with respect to this Guarantee or any of the
transactions contemplated hereby or (2) which has any reasonable likelihood of
having a material adverse effect on the business, operations, property or
financial or other condition of such Guarantor.
Each Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by such Guarantor on the date of each
borrowing by the Borrowers under the Credit Agreement on and as of such date of
borrowing as though made hereunder on and as of such date.
11. AUTHORITY OF ADMINISTRATIVE AGENT. Each Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Guarantee
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, right, request, judgment
or other right or remedy provided for herein or resulting or arising out of this
Guarantee shall, as between the Administrative Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and such Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and no Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
12. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or any Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (i) when delivered by hand
or (ii) if given by mail, when deposited in the mails by certified mail, return
receipt requested, or (iii) if by telex, fax or similar electronic transfer,
when sent and receipt has been confirmed, addressed as follows:
(a) if to the Administrative Agent or any Lender, at its address or
transmission number for notices provided in subsection 11.2 of the Credit
Agreement; and
(b) if to any Guarantor, at its address or transmission number for
notices set forth under its signature below.
<PAGE> 8
8
The Administrative Agent, each Lender and each Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
13. COUNTERPARTS. This Guarantee may be executed by one or more of the
Guarantors on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A set
of the counterparts of this Guarantee signed by all the Guarantors shall be
lodged with the Administrative Agent.
14. SEVERABILITY. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. INTEGRATION. This Guarantee represents the entire agreement of each
Guarantor with respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein.
16. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by each Guarantor
and the Administrative Agent, PROVIDED that any provision of this Guarantee may
be waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 16(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
17. SECTION HEADINGS. The section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
<PAGE> 9
9
18. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
19. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
20. SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and any other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Guarantor at its address set forth under its signature
below or at such other address of which the Administrative Agent shall
have been notified pursuant hereto;
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
21. WAIVERS OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE HEREOF,
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND THE LENDERS, HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENTS AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE> 10
10
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
[NAME OF SUBSIDIARY GUARANTOR] [NAME OF SUBSIDIARY GUARANTOR]
By By
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Title Title
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Address for Notices: Address for Notices:
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Telex: Telex:
---------------------------- -----------------------------
Fax: Fax:
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[NAME OF SUBSIDIARY GUARANTOR] [NAME OF SUBSIDIARY GUARANTOR]
By By
------------------------------- ---------------------------------
Title Title
----------------------------- -------------------------------
Address for Notices: Address for Notices:
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Telex: Telex:
---------------------------- -----------------------------
Fax: Fax:
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<PAGE> 1
EXHIBIT 10.31
FORM OF BMC GUARANTEE
AMENDED AND RESTATED BMC GUARANTEE, dated as of January 31, 1997 (this
"BMC GUARANTEE"), made by HOMESIDE HOLDINGS, INC., a Florida corporation
(formerly known as Barnett Mortgage Company; the "GUARANTOR"), in favor of THE
CHASE MANHATTAN BANK, as Administrative Agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the lenders (the "LENDERS") parties to the Amended
and Restated Credit Agreement, dated as of January 31, 1997 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among HOMESIDE LENDING, INC. ("HOMESIDE") and HONOLULU MORTGAGE COMPANY, INC.
("HONOMO") as Borrowers (collectively, the "BORROWERS"), the Lenders, THE FIRST
NATIONAL BANK OF BOSTON, as Collateral Agent, and the Administrative Agent.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrowers upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, obligations of the Borrowers under the Existing Credit
Agreement are guaranteed pursuant to the BMC Guarantee, dated as of May 31, 1996
(the "EXISTING BMC GUARANTEE") made by the Guarantor in favor of the
Administrative Agent;
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrowers under the Credit Agreement that
the Existing BMC Guarantee shall be amended and restated as provided herein; and
WHEREAS, HomeSide is a wholly-owned subsidiary of the Guarantor; HonoMo
is a wholly owned subsidiary of HomeSide; and it is to the advantage of the
Guarantor that the Lenders make the Loans to the Borrowers;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing BMC Guarantee shall be
amended and restated in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, capitalized terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
<PAGE> 2
2
(b) As used herein, "OBLIGATIONS" means, collectively, the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of the Borrowers to the Administrative Agent, the Collateral Agent and the
Lenders (including, without limitation, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to either Borrower
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, the Notes, the other Loan
Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Administrative Agent or
to the Lenders that are required to be paid by the Borrowers or the Guarantor
pursuant to the terms of the Credit Agreement or this BMC Guarantee or any other
Loan Document).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this BMC Guarantee shall refer to this BMC Guarantee as a
whole and not to any particular provision of this BMC Guarantee, and section and
paragraph references are to this BMC Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GUARANTEE. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrowers when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(b) The Guarantor further agrees to pay any and all reasonable expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Administrative Agent or any Lender in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantor under this BMC Guarantee. This
BMC Guarantee shall remain in full force and effect until the Obligations are
paid in full and the Commitments are terminated, notwithstanding that from time
to time prior thereto the Borrowers may be free from any Obligations.
3. RIGHT OF SET-OFF. The Administrative Agent, the Collateral Agent and
each Lender is hereby irrevocably authorized at any time and from time to time
without notice to the Guarantor, any such notice being expressly waived by the
Guarantor, upon any amount of the Obligations becoming due and payable (whether
at stated maturity, by acceleration or otherwise),
<PAGE> 3
3
to set off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent, the Collateral Agent or such Lender to or for
the credit or the account of the Guarantor, or any part thereof in such amounts
as the Administrative Agent, the Collateral Agent or such Lender may elect,
against or on account of the obligations and liabilities of the Guarantor to the
Administrative Agent, the Collateral Agent or such Lender hereunder and claims
of every nature and description of the Administrative Agent or such Lender
against the Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any other Loan Document or otherwise, as the
Administrative Agent, the Collateral Agent or such Lender may elect, whether or
not the Administrative Agent, the Collateral Agent or such Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent, the Collateral Agent and each
Lender shall notify the Guarantor promptly of any such set-off and the
application made by the Administrative Agent, the Collateral Agent or such
Lender, as the case may be, of the proceeds thereof; PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent, the Collateral Agent and
each Lender under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the
Administrative Agent or such Lender may have.
4. NO SUBROGATION. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any set-off or application of funds of the Guarantor by
the Administrative Agent or any Lender, the Guarantor shall not be entitled to
exercise any rights to be subrogated to any of the rights of the Administrative
Agent or any Lender against the Borrowers or any other Guarantor or against any
collateral security or guarantee or right of offset held by the Administrative
Agent or any Lender for the payment of the Obligations, nor shall the Guarantor
seek or be entitled to seek any contribution or reimbursement from the Borrowers
or any other Loan Party in respect of payments made by the Guarantor hereunder,
until all amounts owing to the Administrative Agent and the Lenders by the
Borrowers on account of the Obligations are paid in full and the Commitments are
terminated. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Guarantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to
the Administrative Agent in the exact form received by the Guarantor (duly
indorsed by the Guarantor to the Administrative Agent, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
the Administrative Agent may determine.
5. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender may be rescinded by the Administrative
Agent or such Lender, and any of the Obligations
<PAGE> 4
4
continued, and the Obligations, or the liability of any other party upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and the
Credit Agreement, any Notes, and the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, as the case may be) may deem advisable from time
to time, and any collateral security, guarantee or right of offset at any time
held by the Administrative Agent or any Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for this BMC Guarantee or any property subject thereto. When
making any demand hereunder against the Guarantor, the Administrative Agent or
any Lender may, but shall be under no obligation to, make a similar demand on
the Borrowers or any other guarantor, and any failure by the Administrative
Agent or any Lender to make any such demand or to collect any payments from the
Borrowers or any such other guarantor or any release of the Borrowers or such
other guarantor shall not relieve the Guarantor of its obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Administrative Agent or any
Lender against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
6. GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this BMC Guarantee or acceptance of this BMC Guarantee; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this BMC Guarantee; and all dealings between the Borrowers or the
Guarantor, on the one hand, and the Administrative Agent and the Lenders, on the
other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this BMC Guarantee. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrowers or the Guarantor with respect to the Obligations. This BMC
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or
enforceability of the Credit Agreement, any Note, or any other Loan Document,
any of the Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrowers or any other Loan Party against the
Administrative Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrowers or the Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrowers for the Obligations, or of the Guarantor under this
BMC Guarantee, in bankruptcy or in any other instance. When pursuing its rights
and remedies hereunder against the Guarantor, the Administrative Agent and any
Lender may, but shall be under no obligation
<PAGE> 5
5
to, pursue such rights and remedies as it may have against the Borrowers or any
other Person or against any collateral security or guarantee for the Obligations
or any right of offset with respect thereto, and any failure by the
Administrative Agent or any Lender to pursue such other rights or remedies or to
collect any payments from the Borrowers or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Borrowers or any such other Person or of any such
collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against the Guarantor. This BMC Guarantee
shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and its successors and assigns, and
shall inure to the benefit of the Administrative Agent and the Lenders, and
their respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this BMC Guarantee shall
have been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrowers may be free from any Obligations.
7. REINSTATEMENT. This BMC Guarantee shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of either Borrower or any other Loan
Party, or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, either Borrower, or any other
Loan Party, or any substantial part of its property, or otherwise, all as though
such payments had not been made.
8. PAYMENTS. The Guarantor hereby agrees that the Obligations will be
paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars
at the office of the Administrative Agent located at 270 Park Avenue, New York,
New York 10017.
9. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants to the Administrative Agent and the Lenders that:
(a) the Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged;
(b) the Guarantor has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, this BMC
Guarantee, and has taken all necessary corporate action to authorize its
execution, delivery and performance of this BMC Guarantee;
<PAGE> 6
6
(c) this BMC Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an implied
covenant of good faith and fair dealing;
(d) the execution, delivery and performance of this BMC Guarantee will
not violate any provision of any Requirement of Law or Contractual Obligation of
the Guarantor and will not result in or require the creation or imposition of
any Lien on any of the properties or revenues of the Guarantor pursuant to any
Requirement of Law or Contractual Obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of the
Guarantor) is required in connection with the execution, delivery, performance,
validity or enforceability of this BMC Guarantee; and
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or against any of its
properties or revenues (i) with respect to this BMC Guarantee or any of the
transactions contemplated hereby or (ii) which has any reasonable likelihood of
having a material adverse effect on the business, operations, property or
financial or other condition of the Guarantor.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each borrowing
by a Borrower under the Credit Agreement on and as of such date of borrowing as
though made hereunder on and as of such date.
10. COVENANTS. The Guarantor hereby covenants and agrees with the
Administrative Agent and the Lenders that, from and after the date of this BMC
Guarantee until the Obligations are paid in full and the commitments are
terminated:
(a) The terms of each of subsections 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9,
7.10, 7.11, 7.12, 7.13 and 7.14 of the Credit Agreement shall apply to the
Guarantor, MUTATIS MUTANDIS, to the same extent as if the references to a
Borrower therein were references to the Guarantor, and the Guarantor will
perform and satisfy all such covenants as so applied to it;
(b) The Guarantor shall take, or shall refrain from taking, as the case
may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Section 7 or 8 of
the Credit Agreement, and so that no Default or Event of Default, is caused by
any act or failure to act of the Guarantor, and, in particular, the Guarantor
shall not declare or pay any dividend on, or make any payment on account of, or
set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance,
<PAGE> 7
7
retirement or other acquisition of, any shares of any class of Capital Stock of
the Guarantor or any warrants or options to purchase any such Capital Stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Guarantor, the Borrowers or any Subsidiary (such
declarations, payments, setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein called "RESTRICTED
PAYMENTS"), except that, (a) so long as no Event of Default has occurred and is
continuing, (i) from cash dividends declared and paid to the Guarantor by
HomeSide, the Guarantor may declare and pay cash dividends to Holdings in an
amount equal to the actual taxes paid in cash by Holdings, such dividends to be
paid substantially concurrently with the payment of such taxes by Holdings and
to be returned to the Guarantor, who shall return it to HomeSide, to the extent
not applied by Holdings thereto (PROVIDED that notwithstanding the existence of
an Event of Default, the Guarantor shall not be prohibited by the terms of this
subsection from paying taxes due and payable in respect of the Guarantor and its
consolidated Subsidiaries), (ii) from cash dividends declared and paid to the
Guarantor by HomeSide, the Guarantor may declare and pay cash dividends to
Holdings to allow Holdings to redeem Capital Stock of Holdings held by directors
and employees pursuant to employment arrangements of the Borrowers, in an
aggregate annual amount not to exceed $2,000,000, (iii) from cash dividends
declared and paid to the Guarantor by HomeSide, the Guarantor may declare and
pay cash dividends to Holdings to allow Holdings to redeem redeemable Capital
Stock issued in connection with the BBMC Acquisition and listed on Schedule 8.9
of the Credit Agreement in an amount not to exceed $7,500,000 in the aggregate
after the Closing Date, and (iv) from cash dividends declared and paid to the
Guarantor by HomeSide, the Guarantor may declare and pay cash dividends to
Holdings in an amount not to exceed $75,000 in the aggregate in each fiscal year
of HomeSide, to allow Holdings to pay fees and expenses incurred in the
administration of its ordinary and normal activities and (b) so long as no
Blockage Notice (as defined in the Credit Agreement) is in effect, from cash
dividends declared and paid to the Guarantor by HomeSide, the Guarantor may
declare and pay cash dividends to Holdings in an amount equal to the actual
interest payable in cash by Holdings on the Holdings Notes, such dividends to be
paid concurrently with the payment of such interest by Holdings and to be
returned to the Guarantor, who shall return it to HomeSide, to the extent not
applied by Holdings thereto.
(c) The Guarantor shall not incur any Indebtedness or Guarantee
Obligations, or make any investments, loans or advances to any Person, or
conduct, transact or otherwise engage, or commit to transact, conduct or
otherwise engage, in any business or operations other than (i) the ownership of
the capital stock of HomeSide and the exercise of rights and performance of
obligations in connection therewith, (ii) the ownership of the BMC Servicing
Rights (as defined the Credit Agreement) and activities related or incidental
thereto, (iii) the entry into, and exercise of rights and performance of
obligations in respect of, this BMC Guarantee, the BMC Pledge Agreement, the
Holdings Pledge Agreement, the Second Lien Pledge Agreement to which it is a
party, equity subscription agreements, registration rights agreements, voting
and other stockholder agreements, engagement letters, underwriting agreements
and other agreements in respect of its equity securities or any offering,
issuance or sale thereof, (iv) the offering, issuance and sale of its equity
securities to the extent such offering,
<PAGE> 8
8
issuance or sale does not constitute a Change of Control or would be otherwise
inconsistent with the provisions of the Credit Agreement, (v) the entry into,
and exercise of rights and performance of obligations in respect of, indentures,
engagement letters, underwriting agreements and other agreements in respect of
Indebtedness permitted under clause (iv) above or any offering, issuance or sale
thereof, and the offering, issuance and sale of its debt securities representing
such Indebtedness, (vi) the filing of registration statements, and compliance
with applicable reporting and other obligations, under federal, state or other
securities laws, (vii) the listing of its equity securities and compliance with
applicable reporting and other obligations in connection therewith, (viii) the
retention of transfer agents, private placement agents, underwriters, counsel,
accountants and other advisors and consultants, (ix) the performance of
obligations under and in compliance with its certificate of incorporation and
by-laws, or any applicable law, ordinance, regulation, rule, order, judgment,
decree or permit, including, without limitation, as a result of or in connection
with the activities of HomeSide, (x) the incurrence and payment of any taxes for
which it may be liable and (xi) other activities directly related to the
foregoing.
11. AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this BMC
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this BMC Guarantee shall, as between the Administrative Agent and
the Lenders, be governed by the Credit Agreement and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Administrative Agent and the Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and the Guarantor shall not be under
any obligation, or entitlement, to make any inquiry respecting such authority.
12. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or the Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (i) when delivered by hand
or (ii) if given by mail, when deposited in the mails by certified mail, return
receipt requested, or (iii) if by telex, fax or similar electronic transfer,
when sent and receipt has been confirmed, addressed as follows:
(a) if to the Administrative Agent or any Lender, at its address or
transmission number for notices provided in subsection 11.2 of the Credit
Agreement; and
(b) if to the Guarantor, at its address or transmission number for
notices set forth under its signature below.
The Administrative Agent, each Lender and the Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
<PAGE> 9
9
13. SEVERABILITY. Any provision of this BMC Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. INTEGRATION. This BMC Guarantee represents the entire agreement of
the Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Administrative Agent or any Lender relative
to the subject matter hereof not reflected herein.
15. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this BMC Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Guarantor and the Administrative Agent, PROVIDED that any provision of this
BMC Guarantee may be waived by the Administrative Agent and the Lenders in a
letter or agreement executed by the Administrative Agent or by telex or
facsimile transmission from the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 15(a)), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
16. SECTION HEADINGS. The section headings used in this BMC Guarantee
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
17. SUCCESSORS AND ASSIGNS. This BMC Guarantee shall be binding upon
the successors and assigns of the Guarantor and shall inure to the benefit of
the Administrative Agent and the Lenders and their successors and assigns.
18. GOVERNING LAW. THIS BMC GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY,
<PAGE> 10
10
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
19. SUBMISSION TO JURISDICTION; WAIVERS. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this BMC Guarantee and any other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Guarantor at its address set forth under its signature below or at such
other address of which the Administrative Agent shall have been notified
pursuant hereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
20. WAIVERS OF JURY TRIAL. THE GUARANTOR AND, BY ACCEPTANCE HEREOF, THE
ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND THE LENDERS, HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS BMC GUARANTEE, OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE> 11
11
IN WITNESS WHEREOF, each of the undersigned has caused this BMC
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
HOMESIDE HOLDINGS, INC.
By
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Title
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Address for Notices:
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Telex:
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Fax:
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THE CHASE MANHATTAN BANK
By
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Title
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<PAGE> 1
Exhibit 10.32
FORM OF HOMESIDE SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AND COLLATERAL AGENCY AGREEMENT, dated
January 31, 1997, made by HOMESIDE LENDING, INC., a Florida corporation (the
"Grantor"), THE CHASE MANHATTAN BANK, in its capacity as Administrative Agent
under the Credit Agreement referred to below (in such capacity, the
"Administrative Agent"), and THE FIRST NATIONAL BANK OF BOSTON, as Collateral
Agent for the financial institutions party to the Credit Agreement referred to
below (in such capacity, the "Collateral Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Grantor has entered into an Amended and Restated Credit
Agreement, dated as of January 31, 1997, with Honolulu Mortgage Company, Inc.,
the financial institutions from time to time party thereto, as Lenders (the
"Lenders"), the lenders from time to time designated therein as Balance Lenders
(the "Balance Lenders"), the Collateral Agent and the Administrative Agent (said
Agreement, as it may be amended, supplemented or otherwise modified from time to
time, being the "Credit Agreement");
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Grantor under the Existing Credit Agreement
are secured pursuant to, INTER ALIA, the Security and Collateral Agency
Agreement, dated as of May 31, 1996 (the "EXISTING HOMESIDE SECURITY AGREEMENT")
among the parties to this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans that the
Existing Homeside Security Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto hereby
agree that on the Closing Date the Existing Homeside Security Agreement shall be
amended and restated in its entirety as follows:
1. Defined Terms.
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Terms defined in the UCC (as hereinafter defined) are used herein as
therein defined. As used in this Agreement, capitalized terms defined in the
Credit Agreement and not otherwise defined herein have the meanings given in the
Credit Agreement, and the following terms have the meanings specified below
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):
<PAGE> 2
2
"ADDITIONAL REQUIRED DOCUMENTS" has the meaning set forth in Section 4(a)
of this Agreement.
"AGENCY CUSTODIAL AGREEMENTS" shall mean, collectively, the FHLMC Custodial
Agreement, the FNMA Custodial Agreement and the GNMA Custodial Agreement.
"APPROVED NON-AGENCY MORTGAGE LOAN" shall mean a Mortgage Loan in respect
of which the Grantor has Servicing Rights covered by a duly executed and
delivered Acknowledgment Agreement.
"CERTIFICATING CUSTODIAN" shall mean any Person acting as the Grantor's
"document custodian," "custodian" or "certificating custodian," as such terms
are used in the Agency Guides, for purposes of (a) certifying that the
documentation relating to Mortgage Loans received by such Person from the
Grantor (or the Collateral Agent) is complete and acceptable under the
applicable Agency Guide for purposes of including such Mortgage Loan in a pool
of Mortgage Loans in which Mortgage-Backed Securities will represent interests
and (b) holding such documentation following formation of such pools and
issuance of such Mortgage-Backed Securities. The Certificating Custodian shall
at all times be a party to the Agency Custodial Agreements.
"COLLATERAL" has the meaning set forth in Section 3 of this Agreement.
"FHLMC CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
supplemented or otherwise modified from time to time, between FHLMC, the Grantor
and any Person meeting the eligibility requirements set forth in the FHLMC Guide
to serve as a "custodian," as such term is used in the FHLMC Guide, pursuant to
which such Person is authorized to act as Certificating Custodian for the
Grantor.
"FNMA CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
supplemented or otherwise modified from time to time, between FNMA, the Grantor
and any Person meeting the eligibility requirements set forth in the FNMA Guide
to serve as a "document custodian," as such term is used in the FNMA Guide,
pursuant to which such Person is authorized to act as Certificating Custodian
for the Grantor.
"FUNDING ACCOUNT" shall mean account number 230-204910 maintained by the
Grantor with the Administrative Agent.
"GNMA CUSTODIAL AGREEMENT" shall mean the agreement, as amended, modified
or supplemented from time to time, between GNMA, the Grantor and any Person
meeting the eligibility requirements set forth in the GNMA Guide to serve as
a"certificating custodian," as such term is used in the GNMA Guide, pursuant to
which such Person is authorized to act as Certificating Custodian.
"MBS CUSTODY ACCOUNT" has the meaning set forth in Section 6(h) of this
Agreement.
<PAGE> 3
3
"MORTGAGE LOAN SETTLEMENT ACCOUNT" has the meaning set forth in Section
6(c) of this Agreement.
"PROCEEDS" shall mean "proceeds," as such term is defined in Section
9-306(1) of the UCC, and, in any event, includes, without limitation, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Grantor from time to time with respect to any of the Collateral, (b) any and
all payments (in any form whatsoever) made or due and payable to the Grantor
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of Governmental
Authority), and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"REQUIRED DOCUMENTS" has the meaning set forth in Section 4(a) of this
Agreement.
"SECURED OBLIGATIONS" shall mean, collectively, the unpaid principal of and
interest on the Loans and any Notes and all other obligations and liabilities of
the Grantor and each of the other Loan Parties to the Secured Parties
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Grantor or any other Loan
Party, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, the Loans, any
Notes, the HomeSide Guaranty, the HomeSide Pledge Agreement, this Agreement, the
other Loan Documents or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to any of
the Secured Parties that are required to be paid by the Grantor or any other
Loan Party pursuant to the terms of the Credit Agreement, this Agreement or any
other Loan Document).
"SECURED PARTIES" shall mean, collectively, the Lenders, the Balance
Lenders, the Collateral Agent and the Administrative Agent.
"SECURITIES SETTLEMENT ACCOUNT" has the meaning set forth in Section 6(j)
of this Agreement.
"SERVICING CONTRACT" shall mean each of the contracts or other agreements
to which the Grantor is a party pursuant to which the Grantor holds Servicing
Rights, in each case as amended, supplemented or otherwise modified from time to
time, including, without limitation, (a) all rights of the Grantor to receive
moneys due and to become due to it thereunder or in connection therewith, other
than any portion of principal and interest payable under the related Mortgage
Loans to the extent not attributable to servicing fees payable to the Grantor
<PAGE> 4
4
under such Servicing Contracts, (b) all rights of the Grantor to damages arising
out of, or for, breach or default in respect thereof, and (c) all rights of the
Grantor to perform and to exercise all remedies thereunder.
"SERVICING RECEIVABLES" shall mean the accounts, receivables and other
amounts owing to the Grantor for its own account in respect of Servicing Rights
or under a Servicing Contract, including, without limitation, all Eligible
Servicing Receivables.
"SERVICING RIGHTS" shall mean the rights of the Grantor to (a) service
Mortgage Loans for or on behalf of the owner or holder of such Mortgage Loans
(including investors in Mortgage-Backed Securities supported by Mortgage Loans)
pursuant to a direct agreement between the Grantor and an Agency, Approved
Investor or such owner or holder, together with the legal titles, mortgagor
files, escrows and records relating to such Mortgage Loans and the right to
receive servicing fee income and any other income arising from or in connection
with such Mortgage Loans, including late charges, termination fees and charges
and all other incidental fees and charges, and (b) subservice Mortgage Loans for
or on behalf of the legal title holder of the direct servicing rights in respect
of, or the owner or holder of, such Mortgage Loans, pursuant to a subservicing
agreement in form and substance satisfactory to the Administrative Agent between
the Grantor and the legal title holder of the related direct servicing rights,
together with the legal titles, mortgagor files, escrows and records relating to
such Mortgage Loans and the right to receive servicing or subservicing fee
income and any other income arising from or in connection with such Mortgage
Loans, including late charges, termination fees and charges and all other
incidental fees and charges.
"SERVICING SETTLEMENT ACCOUNT" has the meaning set forth in Section 6.1(m)
of this Agreement.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; PROVIDED, HOWEVER, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Collateral Agent's and the other Secured Parties'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
2. Appointment of Collateral Agent.
-------------------------------
Pursuant to the Credit Agreement the Collateral Agent has been appointed to
act as secured party, agent, bailee and custodian for the exclusive benefit of
the Secured Parties with respect to the Collateral. The Collateral Agent hereby
acknowledges that it has accepted such appointment and agrees to maintain and
hold all Collateral at any time delivered to it as secured party, agent, bailee
and custodian for the exclusive benefit of the Secured Parties. The Collateral
Agent acknowledges and agrees that it is acting and will act with respect to the
Collateral for the exclusive benefit of the Secured Parties and is not, and
shall not at any time in the future be,
<PAGE> 5
5
subject, with respect to the Collateral, in any manner or to any extent, to the
direction or control of the Grantor or any of the other Loan Parties, except as
expressly permitted hereunder and under the other Loan Documents. The Collateral
Agent agrees to act in accordance with this Agreement and in accordance with any
written instructions from the Administrative Agent delivered pursuant to the
Credit Agreement. Under no circumstances shall the Collateral Agent deliver
possession of Collateral to the Grantor or any other Person (other than the
Administrative Agent) or otherwise release any Collateral from the Lien created
hereby, except in accordance with the express terms of this Agreement or
otherwise upon the written instructions of the Administrative Agent.
3. Grant of Security Interest.
--------------------------
As collateral security for the full and prompt payment when due (whether at
stated maturity, by acceleration or otherwise) of, and the performance of, all
the Secured Obligations and to induce the Lenders to make the Loans pursuant to
the Credit Agreement, effective during any Negative Security Period, the Grantor
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to the
Collateral Agent, on behalf and for the ratable benefit of the Secured Parties,
and hereby grants to the Collateral Agent, on behalf and for the ratable benefit
of the Secured Parties, a security interest in, all of the Grantor's right,
title and interest in, to and under the following, whether now owned or
hereafter acquired, whether now in existence or hereafter arising (all of which
being herein collectively called the "Collateral"):
(a) all Mortgage Loans submitted by the Grantor for inclusion in the
HomeSide Tranche A Borrowing Base and all Mortgage Loans purchased by the
Grantor with the proceeds of an Eligible Early Buyout Advance or an Eligible
Paid-in-Full Buyout Advance, including, without limitation, all notes,
mortgages, deeds to secure debt, trust deeds and security agreements, financing
statements and fixture filings related thereto, all rights to payment
thereunder, all rights in the Property securing payment of the indebtedness of
the Obligors thereunder or that are the subject of such Mortgage Loans, all
rights under documents related thereto, such as guaranties and insurance
policies (issued by an Agency or otherwise), including, without limitation,
mortgage and title insurance policies, fire and extended coverage insurance
policies (including the right to any return premiums) and FHA insurance and VA
guaranties and all rights, if any, in cash deposits consisting of impounds,
insurance premiums or other funds held on account thereof, all commitments and
other approvals issued by or on behalf of the FHA or the VA to insure or
guaranty any of the Mortgage Loans, and all Hedge Contracts relating to any of
the foregoing;
(b) all Mortgage-Backed Securities, all right to the payment of moneys and
noncash distributions on account thereof and all new, substituted and additional
securities at any time issued with respect thereto, and all Hedge Contracts
related thereto;
(c) all Take-Out Commitments covering any part of the Collateral, all
rights to deliver Mortgage Loans and Mortgage-Backed Securities to investors and
other purchasers pursuant to such Take-Out Commitments, and all proceeds
resulting from the disposition of such Collateral pursuant thereto;
<PAGE> 6
6
(d) all commitments and other agreements or approvals issued by or on
behalf of any Agency to issue, insure or guaranty any Mortgage-Backed Security
(other than any such commitments or approvals the creation of a security
interest in which would be prohibited thereby or by applicable law);
(e) all (i) Servicing Rights, (ii) Servicing Contracts and (iii) Hedge
Contracts held by the Grantor related thereto, (iv) rights to receive payments
in connection with Servicing Contracts, Servicing Rights and Hedge Contracts,
whether on account of the performance of services, upon the termination of
Servicing Rights, Servicing Contracts, Hedge Contracts or otherwise (including,
without limitation, all Eligible Servicing Receivables (and all deeds,
contracts, agreements, instruments of title and other documents received or
receivable in respect thereof)), and (v) rights with respect to the placement of
escrow deposits associated with such Servicing Rights and Servicing Contracts
and all rights to the payment of money or provision of concessions or services
with respect thereto;
(f) the Mortgage Loan Settlement Account, the Securities Settlement
Account, the Servicing Settlement Account, the MBS Custody Account, the Funding
Account and any other custodial account of the Grantor held by or in the name of
the Collateral Agent or its bailee or designee (including, without limitation,
the Administrative Agent), and any and all funds, securities, Cash Equivalents
and other items at any time held in such accounts and any and all rights of the
Grantor to insurance payments made in respect of such accounts;
(g) all files, documents, agreements, instruments, deeds, chattel paper,
inventory consisting of Mortgage Loans, Mortgage-Backed Securities or Servicing
Rights held for sale, insurance policies, personal property, contract rights,
accounts, general intangibles, records, surveys, certificates, correspondence,
appraisals, computer records, tapes, discs, cards, accounting records and other
books, records, information and data of the Grantor relating to the Collateral
(including all such items necessary or helpful in the administration or
servicing of the Collateral) of whatever kind or nature whatsoever relating to
the Mortgage Loans described in subsection (a) above or the servicing of
Mortgage Loans, the Mortgage-Backed Securities, the Take-Out Commitments, the
Servicing Rights or any other Collateral, and all other documents or instruments
delivered to the Collateral Agent in respect of the Collateral, including,
without limitation, the right to receive all insurance proceeds and condemnation
awards which may be payable in respect of any of the Property; and
(h) to the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for, and rents,
profits and products of, each of the foregoing.
4. Delivery of Collateral Documentation; Submission of Collateral for
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Inclusion in Borrowing Bases.
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(a) DELIVERY OF MORTGAGE LOANS. From time to time, the Grantor shall
deliver or cause to be delivered to the Collateral Agent Eligible Mortgage Loans
to be included in the HomeSide Tranche A Borrowing Base as permitted pursuant to
the Credit Agreement, by
<PAGE> 7
7
delivery to the Collateral Agent of a HomeSide Tranche A Borrowing Base Addition
Report in the form of ATTACHMENT 1-A hereto, with all blanks completed in
conformity therewith, together with those documents, instruments and agreements
described on ATTACHMENT 2 hereto (the "Required Documents"), except to the
extent such Eligible Mortgage Loan constitutes an Eligible Wet Loan, in which
case the Required Documents shall be delivered to the Collateral Agent within 10
days after the date such Eligible Wet Loan is included in the HomeSide Tranche A
Borrowing Base. Additionally, if requested by the Administrative Agent, the
Grantor shall use diligent efforts to promptly deliver to the Collateral Agent
the items described on ATTACHMENT 8 hereto (the "Additional Required
Documents"). Whenever the Grantor shall deliver Eligible Mortgage Loans for
inclusion in the HomeSide Tranche A Borrowing Base, the Grantor shall be deemed
to have represented and warranted that (i) it has delivered to the Collateral
Agent (or, in the case of an Eligible Wet Loan, will deliver to the Collateral
Agent within 10 days after the date such Eligible Wet Loan is included in the
HomeSide Tranche A Borrowing Base) the Required Documents, and (ii) it holds in
its possession or is using diligent efforts to obtain possession of the
Additional Required Documents and to deliver the Additional Required Documents
to the Collateral Agent. The Grantor shall hold the Additional Required
Documents in its possession in trust for the benefit of the Secured Parties
until delivery thereof to the Collateral Agent as provided herein.
(b) DELIVERY OF MORTGAGE-BACKED SECURITIES. From time to time, the Grantor
shall deliver or caused to be delivered to the Collateral Agent or its bailee
(including, without limitation, the Administrative Agent) Eligible
Mortgage-Backed Securities to be included in the HomeSide Tranche A Borrowing
Base and shall confirm the issuance of Mortgage-Backed Securities, by delivery
to the Collateral Agent of a HomeSide Tranche A Borrowing Base Addition Report,
in the form of ATTACHMENT 1-B hereto, with all blanks completed in conformity
therewith, together with the Required Documents for such Mortgage-Backed
Securities.
(c) DELIVERY OF SERVICING RECEIVABLES; DELIVERY OF RECEIVABLES CERTIFICATE.
From time to time, the Grantor may designate Eligible Early Buyout Advance
Receivables, Eligible Paid-In-Full Buyout Advance Receivables and Eligible
Foreclosure Advance Receivables for inclusion in the HomeSide Tranche B
Borrowing Base by delivering, or causing to be delivered, to the Collateral
Agent a HomeSide Tranche B Borrowing Base Addition Report, in the form of
ATTACHMENT 1-C hereto, with all blanks completed in conformity therewith,
together with all Required Documents in respect of such Eligible Servicing
Receivables. Simultaneously with its delivery to the Administrative Agent of a
notice of borrowing and/or notice of payment in respect of each HomeSide Tranche
B Advance Loan, Tranche B CAF Advance and HomeSide Tranche B Swing Line Loan as
required under the Credit Agreement, the Grantor shall deliver, or cause to be
delivered, to the Collateral Agent a Receivables Certificate in the form of
ATTACHMENT 1-D hereto, with all blanks completed in conformity therewith.
(d) DESIGNATION OF MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES. By
designating a Mortgage Loan or Mortgage-Backed Security for inclusion in the
HomeSide Tranche A Borrowing Base in accordance with this Section 4, the Grantor
shall be deemed to represent and warrant to each of the Secured Parties at and
as of the date of such addition that
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such Mortgage Loan or Mortgage-Backed Security constitutes an Eligible
Mortgage Loan or Eligible Mortgage-Backed Security, as the case may be. If any
such Mortgage Loan or Mortgage-Backed Security fails to constitute an Eligible
Mortgage Loan or Eligible Mortgage-Backed Security, at any time, then the
Grantor shall promptly so notify the Administrative Agent and the Collateral
Agent by telefacsimile, and such Mortgage Loan or Mortgage-Backed Security shall
be deemed to have no value for purposes of determining the HomeSide Tranche A
Borrowing Base (whether or not the Grantor has given such notice).
(e) DESIGNATION OF SERVICING RECEIVABLES. By designating Eligible Servicing
Receivables for inclusion in the HomeSide Tranche B Borrowing Base in accordance
with this Section 4, the Grantor shall be deemed to represent and warrant to
each of the Secured Parties at and as of the date of such inclusion that such
Eligible Servicing Receivables constitute Eligible Default-Related Advance
Receivables, Eligible Early Buyout Advance Receivables, Eligible Foreclosure
Advance Receivables, Eligible P&I Advance Receivables, Eligible Paid-in-Full
Buyout Advance Receivables or Eligible T&I Advance Receivables, as the case may
be. If any such servicing receivables fail to constitute Eligible
Default-Related Advance Receivables, Eligible Early Buyout Advance Receivables,
Eligible Foreclosure Advance Receivables, Eligible P&I Advance Receivables,
Eligible Paid-in-Full Buyout Advance Receivables or Eligible T&I Advance
Receivables, at any time, then the Grantor shall promptly so notify the
Administrative Agent and the Collateral Agent by telefacsimile, and such
Servicing Receivables shall be deemed to have no collateral value for purposes
of determining the HomeSide Tranche B Borrowing Base (whether or not the Grantor
has given such notice).
(f) COLLATERAL AGENT OFFICE. The Collateral Agent shall hold all
documentation relating to or constituting Collateral delivered to it from time
to time under this Agreement or any other Loan Document in accordance with the
provisions hereof and of the other Loan Documents in a fire resistant vault,
drawer or other suitable depository in an office maintained by the Collateral
Agent on premises owned or leased or subleased by it and occupied and controlled
solely by the Collateral Agent (the "Collateral Agent Office"), which
documentation shall (x) be conspicuously marked to show the Collateral Agent's
and the other Secured Parties' interests therein and (y) not be commingled with
any other assets or property of, or held by, the Collateral Agent. The
Collateral Agent Office may, in the discretion of the Collateral Agent, be
located on premises leased or subleased to the Collateral Agent by the Grantor
or an Affiliate of the Grantor, and may be adjacent to or in the same office
building as offices maintained and occupied by the Grantor or its Affiliates;
PROVIDED, HOWEVER, that (i) any such lease or sublease shall be in a form
customary in the location of such premises for arms'-length leases or subleases
of office premises between unrelated parties, and shall provide that the
Collateral Agent shall enjoy exclusive occupancy of such premises with no right
of access being granted to or retained by the Grantor or its other Affiliates
pursuant to such lease or sublease (other than any such right which is customary
for unaffiliated, third-party landlords to be granted in order to respond to
emergencies, or in order to conduct inspection of the premises upon reasonable
notice to the Collateral Agent and in the presence of the Collateral Agent),
(ii) there shall be no doorway or other physical access to the Collateral Agent
Office directly from premises occupied exclusively by the Grantor or any of its
other Affiliates, (iii) the public entrance to the Collateral Agent Office shall
be accessible from the street, a public lobby or other
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public space, and entrance by the public into the Collateral Agent Office shall
not require access to space occupied exclusively by the Grantor or any of its
other Affiliates, (iv) the public entrance to the Collateral Agent Office shall
be conspicuously marked with the name of the Collateral Agent to identify such
premises as being premises of the Collateral Agent, and there shall be no
reference in such markings to the Grantor or any of its other Affiliates, (v)
the Collateral Agent Office shall be staffed solely by employees, officers or
agents of the Collateral Agent and not of the Grantor or any of its other
Affiliates, which employees, officers and agents will be under the sole
supervision and direction of the Collateral Agent, and (vi) the Grantor shall
have access to the Collateral Agent Office, under the supervision of the
Collateral Agent, during normal business hours, which access shall be not
greater than that afforded to similar Persons in an arm's-length custodial
transaction.
5. Collateral Agent's Review of Collateral, Borrowing Base Certificates.
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(a) REVIEW OF COLLATERAL. Upon receipt of Required Documents specified on
ATTACHMENT 2 hereto for any Collateral, the Collateral Agent shall review the
same and verify that:
(i) all Required Documents appear regular on their face and
remain in the Collateral Agent's possession; and
(ii) the statements set forth on Attachment 3 hereto are accurate
and complete in all respects in respect of such Collateral.
Such verification of Collateral delivered during any period covered by a Basic
Status Report referred to in Section 5(d) hereof shall be set forth in such
report. If the Collateral Agent (x) notes any exception in the review described
in subsection (i) or (ii) above, (y) determines that any item of Collateral does
not satisfy the requirements of the Loan Documents for inclusion in the HomeSide
Tranche A Borrowing Base or the HomeSide Tranche B Borrowing Base, or (z)
questions, in its reasonable discretion, the genuineness, regularity, propriety,
or accuracy of any item of Collateral, the Collateral Agent shall note the same
as ineligible Collateral in its next HomeSide Tranche A Borrowing Base
Certificate or HomeSide Tranche B Borrowing Base Certificate, as the case may
be, delivered to the Administrative Agent.
(b) BORROWING BASE DETERMINATION; DETERMINATION ASSUMPTIONS. On each
Business Day, the Collateral Agent shall compute the value of the HomeSide
Tranche A Borrowing Base and the HomeSide Tranche-B Borrowing Base (a "Borrowing
Base Determination"). At the close of the last Business Day of each week, the
Collateral Agent shall reconcile the Borrowing Base Determination against the
written determination thereof made by the Grantor (which determination shall be
in form and substance satisfactory to the Administrative Agent). In the event
either the Collateral Agent or Grantor determines that a discrepancy exists, the
Grantor shall cooperate with the Collateral Agent to reconcile such discrepancy
promptly but in any event not later than the following Business Day and prior to
any delivery of a HomeSide Tranche A Borrowing Base Certificate or HomeSide
Tranche B Borrowing Base Certificate to the Administrative Agent. Upon receipt
of a copy of any notice of
<PAGE> 10
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borrowing and/or notice of payment submitted by the Grantor to the Collateral
Agent, deletion of any Collateral from the HomeSide Tranche A Borrowing Base or
the HomeSide Tranche B Borrowing Base or at such other times as the
Administrative Agent or the Grantor shall reasonably request, the Collateral
Agent shall promptly notify the Administrative Agent, or the Grantor, as the
case may be, of its Borrowing Base Determination by delivering a HomeSide
Tranche A Borrowing Base Certificate in the form of ATTACHMENT 4-A hereto and a
HomeSide Tranche B Borrowing Base Certificate in the form of ATTACHMENT 4-B
hereto. In making its Borrowing Base Determination, the Collateral Agent shall
also verify that (i) the aggregate outstanding Principal Amount of all HomeSide
Tranche A Loans, Tranche A CAF Advances and Tranche A Swing Line Loans does not
and, after giving effect to any borrowings or payments contemplated in any such
notice of borrowing or notice of payment or any such deletion, will not, exceed
the HomeSide Tranche A Borrowing Base, (ii) the HomeSide Tranche A Borrowing
Base complies in all respects to the limitations and other terms set forth in
Section 4.1 of the Credit Agreement, (iii) the aggregate outstanding Principal
Amount of all Tranche B Loans, Tranche B CAF Advances and Tranche B Swing Line
Loans does not and, after giving effect to any borrowings or payments
contemplated in any such notice of borrowing or notice of payment or any such
deletion, will not, exceed the HomeSide Tranche B Borrowing Base, and (iv) the
HomeSide Tranche B Borrowing Base complies in all respects to the limitations
and other terms set forth in Section 4.2 of the Credit Agreement.
(c) In making any Borrowing Base Determination or other calculation
involving a determination of the value of the HomeSide Tranche A Borrowing Base
or the HomeSide Tranche B Borrowing Base, the Collateral Agent shall be
permitted to rely, without independent investigation of the correctness thereof,
on:
(i) the information supplied by the Grantor to the Collateral
Agent on the related HomeSide Tranche A Borrowing Base Addition Report with
respect to the unpaid principal balance, the acquisition cost (minus
discount points and fees associated with yield), and the Applicable
Take-Out Price relating to any Mortgage Loan;
(ii) the information supplied by the Grantor to the Collateral
Agent on the related HomeSide Tranche A Borrowing Base Addition Report with
respect to the Applicable Take-Out Price relating to any Mortgage-Backed
Security;
(iii) the information supplied by the Grantor to the Collateral
Agent on the related HomeSide Tranche B Borrowing Base Addition Report or
Receivables Certificate with respect to the amount of any Servicing
Receivable;
(iv) the information supplied by the Grantor to the Collateral
Agent, whether written or in any other form acceptable to the Collateral
Agent, with respect to a determination as to whether amounts received in
the Mortgage Loan Settlement Account or Securities Settlement Account
represent the purchase price paid for a specific Mortgage Loan or
Mortgage-Backed Security and,
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consequently, whether the value of such Mortgage Loan or of such
Mortgage-Backed Security should be removed from such calculation; and
(v) the information supplied by the Grantor to the Collateral
Agent, whether written or in any other form acceptable to the Collateral
Agent, with respect to a determination as to whether amounts received in
the Servicing Settlement Account represent collections of Servicing
Receivables or other Servicing Rights or the purchase price paid for
Servicing Receivables or other Servicing Rights sold and, consequently,
whether the value of such Servicing Receivables or Servicing Rights should
be removed from such calculation.
(d) REPORTS. The Collateral Agent shall deliver to: (i) the Administrative
Agent and the Grantor, (A) within three Business Days after the end of each
month, a basic status report in form and substance acceptable to the
Administrative Agent with respect to the status of the HomeSide Tranche A
Borrowing Base and the HomeSide Tranche B Borrowing Base ("Basic Status Report")
as of the end of the preceding month and (B) within one Business Day after the
end of each week, a report in form and substance acceptable to the
Administrative Agent with respect to exceptions noted by the Collateral Agent in
accordance with Section 5(a) hereof outstanding as of the end of the preceding
week (an "Outstanding Exceptions Report"), and (ii) to the Administrative Agent
and the Lenders, from time to time, such other reports and information as the
Administrative Agent or the Required Lenders may from time to time reasonably
request. In preparing any such reports, the Collateral Agent shall be entitled
to rely, without independent investigation (other than the review steps
described on Attachment 3 hereto), on information supplied to the Collateral
Agent by the Grantor.
6. Release of Collateral; Pool Formation; Pledging, of Mortgage-Backed
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Securities and Transfer of Funds from Settlement Accounts.
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(a) RELEASE OF MORTGAGE LOANS FOR CORRECTION UNDER TRUST RECEIPT. Unless
and until notified by the Administrative Agent (by telephone, telefacsimile or
otherwise) that a Default or an Event of Default has occurred and is continuing,
the Collateral Agent is hereby authorized upon written request of the Grantor to
release from time to time to the Grantor, documentation constituting or relating
to Mortgage Loans pledged hereunder against a trust receipt executed by the
Grantor in the form of ATTACHMENT 5-A hereto (during a Negative Security Period)
or ATTACHMENT 5-B hereto (during a Positive Security Period), with all blanks
completed in conformity therewith. In any such release, the Grantor and the
Collateral Agent will comply with the relevant trust receipt procedures
specified on ATTACHMENT 6 hereto. The Grantor hereby represents and warrants
that (i) any request by the Grantor for release of documentation constituting or
relating to Mortgage Loans shall be solely for the purposes of correcting
clerical or other nonsubstantial documentation problems in preparation for
returning such documentation to the Collateral Agent for ultimate sale or
exchange, and (ii) the Grantor shall request such release in compliance with all
of the terms and conditions of such release herein set forth. The Grantor agrees
to hold any documentation so released in trust for the Collateral Agent and the
other Secured Parties, and agrees to return such documentation to the Collateral
Agent no later than the close of business on the fourteenth (14th) day
following the
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date of such release or, if such day is not a Business Day, on the immediately
preceding Business Day.
(b) RELEASE OF MORTGAGE LOANS FOR WHOLE-LOAN PURCHASES. Unless and until
otherwise notified by the Administrative Agent (by telephone, telefacsimile or
otherwise) that a Default or an Event of Default has occurred and is continuing,
upon delivery from time to time by the Grantor to the Collateral Agent of a
shipping request and authorization to ship in the form of ATTACHMENT 7-A hereto,
with all blanks completed in conformity therewith, the Collateral Agent shall
release documentation constituting or relating to Mortgage Loans pledged
hereunder to Approved Investors for purchase as whole, non-pooled Mortgage
Loans. Any transmittal of documentation for Mortgage Loans in the possession of
the Collateral Agent in connection with the sale thereof to an Approved Investor
(other than an Agency) shall be under cover of a transmittal letter
substantially in the form of ATTACHMENT 7-B hereto (during a Negative Security
Period) or ATTACHMENT 7-C hereto (during a Positive Security Period), with all
blanks completed in conformity therewith and duly executed by the Collateral
Agent. Any transmittal of documentation for Mortgage Loans in connection with
the sale thereof to either FHLMC or FNMA for inclusion as whole, non-pooled
Mortgage Loans in their respective loan portfolios shall be (x) under cover of a
transmitted letter substantially in the form of ATTACHMENT 7-B hereto (during a
Negative Security Period) or ATTACHMENT 7-C hereto (during a Positive Security
Period), with all blanks completed in conformity therewith and duly executed by
the Collateral Agent, (y) under cover of such other forms in lieu of the
foregoing that FHLMC or FNMA require pursuant to their respective Agency Guides,
duly executed by the Collateral Agent and, if necessary, the Grantor, or (z)
with appropriate entries into any applicable electronic telecommunications
network utilized by FHLMC or FNMA. In each case of transmittal of documentation
constituting or relating to Mortgage Loans pursuant to this subsection (b), the
Collateral Agent and the Grantor shall instruct the recipient thereof that such
documentation shall be resumed to the Collateral Agent if such Mortgage Loans
are not purchased and the proceeds thereof paid in accordance with subsection
(c) below within forty-five (45) days after such recipient's receipt of such
documentation or, if such forty-fifth day is not a Business Day, on the
immediately preceding Business Day. With respect to transmittal of documentation
constituting or relating to Mortgage Loans, before the Collateral Agent delivers
documentation pursuant to this subsection (b), the Grantor shall have delivered
to the Collateral Agent (or any other applicable Person) such forms, duly
executed by the Grantor, or written notification that the Grantor has made such
appropriate entries into any applicable electronic telecommunications network
utilized by FHLMC or FNMA, as required under the applicable Agency Guides or
Take-Out Commitments to effect delivery to FHLMC, FNMA or any other Approved
Investor of such Mortgage Loans and payment therefor in accordance with the
instructions of the Collateral Agent.
(c) MORTGAGE LOAN SETTLEMENT ACCOUNT. With respect to any purchases of
Mortgage Loans described in subsection (b) hereof, the Collateral Agent and the
Grantor shall instruct each Approved Investor purchasing Mortgage Loans that all
amounts payable on account of the sale of such Mortgage Loans are to be paid
directly by such party to a "no access" account of the Grantor (account no.
230-204929) maintained in the Administrative Agent's name alone at the office of
the Administrative Agent for the benefit of the Grantor (the "Mortgage Loan
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Settlement Account"). For all such purchases of Mortgage Loans, the Grantor
shall, upon demand of the Collateral Agent or the Administrative Agent, provide
the Collateral Agent and the Administrative Agent with evidence that the Grantor
has directed such Approved Investors to pay such amounts directly into the
Mortgage Loan Settlement Account. Upon the Administrative Agent's receipt of the
full amount of the purchase price for each Mortgage Loan from an Approved
Investor in accordance with this subsection (c), the security interest created
by this Agreement on the affected Mortgage Loan (but not the Proceeds thereof)
shall be automatically released. Unless a Default or an Event of Default shall
be continuing, amounts held from time to time in the Mortgage Loan Settlement
Account may, upon the instructions of the Grantor, be invested in Cash
Equivalents.
(d) SECURITY INTEREST IN MORTGAGE LOAN SETTLEMENT ACCOUNT. Pursuant to
Section 3 hereof, the Grantor has granted to the Collateral Agent, for the
benefit of the Secured Parties, effective during any Negative Security Period, a
security interest in the Mortgage Loan Settlement Account and in any and all
funds, securities, Cash Equivalents and other items at any time held therein as
collateral security for the Secured Obligations. This subsection (d) shall
constitute irrevocable notice to the Collateral Agent that the Mortgage Loan
Settlement Account is a "no access" account to the Grantor. The Collateral Agent
shall hold its security interest in the Mortgage Loan Settlement Account and all
funds at any time held therein for the benefit of the Secured Parties and with
all rights of a secured party under the UCC and other applicable New York law.
In no circumstances shall the Grantor have access to, control of or dominion
over the Mortgage Loan Settlement Account. The Collateral Agent hereby appoints
the Administrative Agent to hold the Mortgage Loan Settlement Account pursuant
to the terms hereof for the benefit of the Secured Parties with all rights of a
secured party under the UCC and other applicable New York law, and the
Administrative Agent hereby accepts such appointment.
(e) RELEASE OF MORTGAGE LOANS FOR POOLING. Unless and until otherwise
notified by the Administrative Agent (by telephone, telefacsimile or otherwise)
that a Default or an Event of Default has occurred and is continuing, upon
delivery from time to time by the Grantor to the Collateral Agent of a shipping
request and authorization to ship in the form of ATTACHMENT 7-A hereto, with all
blanks completed in conformity therewith, the Collateral Agent shall release
documentation constituting or relating to Mortgage Loans in connection with the
formation of a pool of Mortgage Loans supporting Mortgage-Backed Securities. Any
transmittal of documentation for such Mortgage Loans in the possession of the
Collateral Agent shall be to the Certificating Custodian and shall be (x) under
cover of a transmittal letter substantially in the form of ATTACHMENT 7-D hereto
(during a Negative Security Period) or ATTACHMENT 7-E hereto (during a Positive
Security Period), as applicable, with all blanks completed in conformity
therewith and duly executed by the Collateral Agent; (y) under cover of such
other forms in lieu of the foregoing that FHLMC, FNMA or GNMA require pursuant
to their respective Agency Guides, duly executed by the Collateral Agent and, if
necessary, the Grantor; or (z) with entries into any applicable electronic
telecommunications network utilized by FHLMC, FNMA or GNMA. The Collateral Agent
and the Grantor shall, with respect to each Mortgage Loan for which
documentation is transmitted pursuant to this subsection (e), instruct the
Certificating Custodian to (i) return to the Collateral Agent, within ten (10)
days after receiving such documentation, either (A) evidence of such Mortgage
Loan's initial certification for inclusion in a
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Mortgage Loan pool if the Certificating Custodian so certifies such Mortgage
Loan or (B) all documentation relating to such Mortgage Loan if the
Certificating Custodian does not so certify such Mortgage Loan, (ii) immediately
return all documentation relating thereto to the Collateral Agent if (A) the
Certificating Custodian initially certifies such Mortgage Loan but subsequently
determines that such Mortgage Loan is not suitable for inclusion in a Mortgage
Loan pool supporting a Mortgage-Backed Security prior to the issuance of such
Mortgage-Backed Security or (B) no Mortgage-Backed Security supported by a pool
including such Mortgage Loan has been issued within forty-five (45) days after
the Certificating Custodian's receipt of such documentation, and (iii) segregate
and, during each Negative Security Period, properly identify all such
documentation as collateral of the Secured Parties that secures the Secured
Obligations. Before the Collateral Agent delivers documentation pursuant to this
subsection (e), the Grantor shall have delivered to the Collateral Agent or any
other applicable Person such forms; duly executed by the Grantor, or written
notification that the Grantor has made the appropriate entries into any
applicable electronic telecommunications network utilized by FHLMC, FNMA or
GNMA, as required under the applicable Agency Guides or Take-Out Commitments to
effect delivery to the Certificating Custodian of such Mortgage Loans and
payment therefor in accordance with the instructions of the Collateral Agent.
The Grantor further agrees to (x) enter into such arrangements and agreements
with the Collateral Agent, the Certificating Custodian and each of the Agencies
as may be necessary to facilitate the issuance of Mortgage-Backed Securities
under the respective Mortgage-Backed Securities programs of such Agencies and
(y) conform its procedures relating to the formation of such pools and the
delivery of such forms and certifications required by FHLMC, FNMA and GNMA, as
the case may be, to the established procedures of the Collateral Agent with
respect thereto.
(f) RETURN OF MORTGAGE LOANS BY CERTIFICATING CUSTODIAN. If the
Certificating Custodian returns to the Collateral Agent documentation relating
to any Mortgage Loan following the Certificating Custodian's determination that
such Mortgage Loan is not suitable for pooling, the Collateral Agent shall hold
such documentation in accordance with the terms hereof, and, following the
Grantor's request that such Mortgage Loan be included in the HomeSide Tranche A
Borrowing Base for purposes of determining the value thereof pursuant to a
HomeSide Tranche A Borrowing Base Addition Report, shall also include such
Mortgage Loan in the HomeSide Tranche A Borrowing Base if (but only if) such
Mortgage Loan constitutes an Eligible Mortgage Loan.
(g) PTC AND SEG ACCOUNTS. The Collateral Agent shall (i) maintain at all
times in its name with the Participants Trust Company (the "PTC"), or with a
participant of the PTC if the Collateral Agent is not a participant of the PTC,
a "Seg Account" (or an account that shall not at any time be subject to a
security interest in favor of the PTC or anyone benefiting through the PTC),
into which each GNMA Mortgage-Backed Security shall be initially deposited or
credited when issued, and (ii) maintain at all times in its name with a bank
that is a member of the Federal Reserve Bank of New York a securities account
into which each FHLMC Mortgage-Backed Security or FNMA Mortgage-Backed Security
shall be entered when issued. In all circumstances, possession, maintenance and
transfer of Mortgage-Backed Securities in, to and from such accounts shall be
under the sole and exclusive control of the Collateral Agent, and the Grantor
shall have no access to, control of or dominion over such accounts.
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(h) MBS CUSTODY ACCOUNT. The Grantor has established and shall at all times
maintain a pledged securities custodial account (Account No. MR7635586) with the
Administrative Agent (the "MBS Custody Account") for the purpose of holding all
Mortgage-Backed Securities. The MBS Custody Account shall be a "no access"
account to the Grantor maintained in the Collateral Agent's name for the benefit
of the Grantor. The Collateral Agent shall have exclusive control over the
disposition of all Mortgage-Backed Securities held in the MBS Custody Account,
and the Grantor shall have no right to transfer, trade or otherwise direct the
disposition of such Mortgage-Backed Securities. Pursuant to Section 3 hereof,
the Grantor has granted to the Collateral Agent, for the benefit of the Secured
Parties, a security interest in the MBS Custody Account and in any and all
Mortgage-Backed Securities at any time held therein or credited thereto as
collateral security for the Secured Obligations. This subsection (h) shall
constitute irrevocable notice to the Collateral Agent that the MBS Custody
Account is a "no access" account to the Grantor. The Collateral Agent shall hold
its security interest in the MBS Custody Account and all Mortgage-Backed
Securities at any time held therein or credited thereto, for the benefit of the
Secured Parties, with all rights of a secured party under the UCC and other
applicable New York or federal law. In no circumstances shall the Grantor have
access to, control of or dominion over the MBS Custody Account.
(i) ISSUANCE OF MORTGAGE-BACKED SECURITIES. The Grantor shall promptly
confirm to the Collateral Agent the issuance of each Mortgage-Backed Security
supported by a pool of Mortgage Loans constituting Collateral prior to such
issuance. Upon the issuance of Mortgage-Backed Securities, (A) the security
interest of the Collateral Agent, for the benefit of the Secured Parties, in the
pooled Mortgage Loans supporting such Mortgage-Backed Securities (but not in the
Proceeds thereof) shall cease, (B) for purposes of determining the HomeSide
Tranche A Borrowing Base, such Mortgage Loans shall be removed from the HomeSide
Tranche A Borrowing Base and, upon receipt by the Collateral Agent of a HomeSide
Tranche A Borrowing Base Addition Report in respect thereof, such
Mortgage-Backed Securities shall be deemed submitted for inclusion in the
HomeSide Tranche A Borrowing Base and (C) such Mortgage-Backed Securities and
the Proceeds thereof shall be subject to a security interest in favor of the
Collateral Agent for the benefit of the Secured Parties during any Negative
Security Period. The Collateral Agent and the Grantor shall comply with all
rules and regulations, if any, of the applicable Agency, the PTC, the applicable
Federal Reserve Bank and any applicable Governmental Authority for recognizing,
creating and perfecting security interests in such Mortgage-Backed Securities
and shall, to the extent consistent with such rules and regulations, comply with
the procedures set forth on ATTACHMENT 3 hereto. For Book-Entry Mortgage-Backed
Securities, the Collateral Agent and the Grantor shall cause the applicable
security to be issued in the name of or pledged or transferred to the Collateral
Agent (or a financial intermediary for the Collateral Agent), as bailee for the
Secured Parties, as collateral security for the Secured Obligations, and the
Grantor shall identify the Collateral Agent (or its financial intermediary), for
the benefit of the Secured Parties, as the Person to whom such Mortgage-Backed
Security shall be issued on the forms required by FHLMC, FNMA or GNMA under
their respective Agency Guides or in entries into any electronic
telecommunications network utilized by FHLMC, FNMA or GNMA. The Collateral Agent
shall make such entries with respect to such Mortgage-Backed Securities on its
books and records as necessary to reflect the transfer and pledge of such
securities for the benefit of the Secured Parties. The Collateral Agent shall
also ensure that each
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of the Administrative Agent, the Grantor, itself and any other applicable Person
receive such confirmation, if any, of the pledge as is necessary to effect a
Perfected Assignment with respect to the pledged security. All such
Mortgage-Backed Securities shall be credited "free" when issued to the
Collateral Agent or a financial intermediary of the Collateral Agent. For
certificated Mortgage-Backed Securities, the Collateral Agent or its bailee
(including, without limitation, the Administrative Agent) shall have received
and be holding in its possession for the benefit of the Secured Parties the
original Mortgage-Backed Security certificate, which shall be registered in the
name of the Collateral Agent or accompanied by a duly executed (in blank),
undated, transfer power or other instrument of assignment sufficient to transfer
the security to the Collateral Agent for the benefit of the Secured Parties.
Immediately upon demand of the Collateral Agent, the Grantor shall provide the
Collateral Agent and the Administrative Agent with evidence that the Grantor has
taken all steps and performed all actions necessary to ensure that the
Collateral Agent holds, for the benefit of the Secured Parties, a valid,
perfected and first priority security interest in all Mortgage-Backed
Securities.
(j) SECURITIES SETTLEMENT ACCOUNT. Unless the Administrative Agent has
notified the Collateral Agent that a Default or an Event of Default has occurred
and is continuing or until otherwise notified by the Administrative Agent (by
telephone, telefacsimile or otherwise), from time to time the Collateral Agent
shall arrange for the timely transfer of any Mortgage-Backed Securities to an
Approved Investor (including any of the Agencies), or the nominee thereof, in
accordance with the terms of any applicable Take-Out Commitment. The Grantor
agrees to provide the Collateral Agent with written or electronic designation of
such Approved Investors, together with the appropriate instructions for
crediting such Approved Investors' respective accounts. All deliveries of
Mortgage-Backed Securities to such Approved Investors shall be made only
"against payment" by such Approved Investors to the Securities Settlement
Account (as hereinafter defined), in immediately available funds, of the full
purchase price of such Mortgage-Backed Securities, in accordance with the terms
of such Take-Out Commitments. The Grantor shall provide the Collateral Agent and
the Administrative Agent with evidence that it has directed all Approved
Investors or other purchasers to pay the proceeds of Mortgage-Backed Securities
purchases directly to a "no access" account to the Grantor (account no.
230-204937) maintained in the Administrative Agent's name alone for the benefit
of the Grantor (the "Securities Settlement Account"). The Collateral Agent shall
hold its security interest in the Securities Settlement Account and all funds at
any time held therein for the benefit of the Secured Parties and with all rights
of a secured party under the UCC and other applicable New York law. In no
circumstances shall the Grantor have access to, control of or dominion over the
Securities Settlement Account. The Collateral Agent hereby appoints the
Administrative Agent to hold the Securities Settlement Account pursuant to the
terms hereof for the benefit of the Secured Parties with all rights of a secured
party under the UCC and other applicable New York law, and the Administrative
Agent hereby accepts such appointment. Upon the Collateral Agent's full receipt
of the purchase price of any Mortgage-Backed Security in accordance with this
subsection (j) the security interest created by this Agreement in the affected
Mortgage-Backed Security (but not in the Proceeds thereof) shall be
automatically released. Unless a Default or an Event of Default shall be
continuing, amounts held from time to time in the Securities Settlement Account
may, upon the instructions of the Grantor, be invested in Cash Equivalents.
<PAGE> 17
17
(k) RELEASE OF CERTAIN MORTGAGE LOANS RELATING TO ELIGIBLE EARLY BUYOUT
ADVANCE RECEIVABLES IN CONNECTION WITH FORECLOSURE PROCEEDINGS. Unless and until
otherwise notified by the Administrative Agent (by telephone, telefacsimile or
otherwise) that a Default or an Event of Default has occurred and is continuing,
upon delivery from time to time by the Grantor to the Collateral Agent of a
shipping request and authorization to ship in the form of ATTACHMENT 7-A hereto,
with all blanks completed in conformity therewith, the Collateral Agent shall
release documentation constituting or relating to Mortgage Loans obtained by the
Grantor in connection with an Eligible Early Buyout Advance Receivable and
pledged hereunder to the attorney or title insurance company that has been
requested by the Grantor to commence foreclosure proceedings in respect of such
Mortgage Loans. Any transmittal of documentation for Mortgage Loans in the
possession of the Collateral Agent to such attorney or title company in
connection with such foreclosure proceedings shall be under cover of a
transmittal letter substantially in the form of ATTACHMENT 7-F hereto (during a
Negative Security Period) or ATTACHMENT 7-G hereto (during a Positive Security
Period), with all blanks completed in conformity therewith and duly executed by
the Collateral Agent. In each case of transmittal of documentation constituting
or relating to Mortgage Loans pursuant to this subsection (k), the Collateral
Agent shall instruct the recipient thereof that it shall return to the
Collateral Agent, within 45 days of receipt of such documentation, either (i)
evidence of the completion of the foreclosure proceedings in respect of such
Mortgage Loans or (ii) all documentation relating to such Mortgage Loans if such
foreclosure proceedings have not been completed.
(l) NO COLLATERAL RELEASE DURING DEFAULT OR EVENT OF DEFAULT. If the
Collateral Agent has been notified in writing by the Administrative Agent that a
Default or an Event of Default has occurred and is continuing, the Collateral
Agent shall not, and shall incur no liability to the Grantor or any other Person
for refusing to, release any item of Collateral to the Grantor or any other
Person without the express prior written consent and at the direction of the
Administrative Agent.
(m) SERVICING SETTLEMENT ACCOUNT. With respect to any amounts owed to the
Grantor in respect of Servicing Receivables or other Servicing Rights
(including, without limitation, all Eligible Default-Related Advance
Receivables, Eligible Early Buyout Advance Receivables, Eligible Foreclosure
Advance Receivables, Eligible P&I Advance Receivables, Eligible Paid-in-Full
Buyout Advance Receivables, Eligible T&I Advance Receivables, proceeds of the
sale of Servicing Rights and all termination and other fees payable in respect
of Servicing Rights) other than from a mortgagor in respect of the applicable
Mortgage Loan, if requested by the Administrative Agent, the Collateral Agent
and the Grantor shall instruct any obligor in respect of such Servicing
Receivable or other Servicing Rights that all amounts payable on account of such
Servicing Receivable or other Servicing Rights are to be paid directly by such
party to a "no access" account of the Grantor (account no. 230-205038)
maintained in the Administrative Agent's name alone at the office of the
Administrative Agent for the benefit of the Grantor (the "Servicing Settlement
Account"). The Grantor shall, upon demand of the Collateral Agent or the
Administrative Agent, provide the Collateral Agent and the Administrative Agent
with evidence that the Grantor has directed such obligors to pay such amounts
directly into the Servicing Settlement Account. Unless a Default or an Event of
Default shall be continuing, amounts held from time to time in the Servicing
Settlement Account may,
<PAGE> 18
18
upon the instructions of the Grantor, be invested in Cash Equivalents. With
respect to any amounts owed to the Grantor in respect of Servicing Receivables
or other Servicing Rights as to which the Administrative has not requested that
such instructions be given to such obligors or which are received by the Grantor
contrary to such instructions, the Grantor shall, on the Business Day of its
receipt thereof, deposit any and all such amounts in a blocked account or other
"no access" account in the name of the Administrative Agent, which account shall
be designated by, and subject to terms and conditions satisfactory to, the
Collateral Agent and the Administrative Agent. All funds so deposited by the
Grantor in such blocked or other account shall be promptly transferred to the
Servicing Settlement Account.
(n) SECURITY INTEREST IN SERVICING SETTLEMENT ACCOUNT. Pursuant to Section
3 hereof, the Grantor has granted to the Collateral Agent, for the benefit of
the Secured Parties, effective during any Negative Security Period, a security
interest in the Servicing Settlement Account and each other blocked or other
account of the type contemplated in subsection (m) above, and in any and all
funds, securities, Cash Equivalents and other items at any time held therein as
collateral security for the Obligations. This subsection (n) shall constitute
irrevocable notice to the Collateral Agent that the Servicing Settlement Account
is a "no access" account to the Grantor. The Collateral Agent shall hold its
security interest in the Servicing Settlement Account and all funds at any time
held therein for the benefit of the Secured Parties and with all rights of a
secured party under the UCC and other applicable New York law. In no
circumstances shall the Grantor have access to, control of or dominion over the
Servicing Settlement Account. The Collateral Agent hereby appoints the
Administrative Agent to hold the Servicing Settlement Account pursuant to the
terms hereof for the benefit of the Secured Parties with all rights of a secured
party under the UCC and other applicable New York law, and the Administrative
Agent hereby accepts such appointment.
(o) TRANSFER OF FUNDS FROM SETTLEMENT ACCOUNTS. The Administrative Agent
shall transfer by 3:00 P.M. of each Business Day from one or more Settlement
Accounts to an account of the Administrative Agent or to the accounts of the
Lenders, the lesser of (i) all amounts owing to each of the Secured Parties
pursuant to the terms of the Credit Agreement and each of the other Loan
Documents, and (ii) all immediately available funds on deposit in the Settlement
Accounts. The Administrative Agent shall determine the order of transfers from
the Settlement Accounts, and will apply the funds so transferred in payment of
all such amounts so owing in conformity with the provisions of the Credit
Agreement (whether upon instructions of the Collateral Agent or otherwise).
Except during the continuance of a Default or an Event of Default, after the
transfer of funds described in the first sentence of this subclause (o), on each
Business Day, the Administrative Agent shall (unless otherwise instructed by the
Borrower) transfer all remaining available funds on deposit in the Settlement
Accounts (if any) to the Funding Account.
7. Rights of the Secured Parties; Limitations on Secured Parties'
--------------------------------------------------------------
Obligations.
-----------
(a) It is expressly agreed by the Grantor that, anything herein to the
contrary notwithstanding, the Grantor shall remain liable to observe and perform
all the conditions, duties and obligations to be observed and performed by it
relating to the Collateral, and the Grantor
<PAGE> 19
19
shall perform all of its duties and obligations thereunder, all in accordance
with and pursuant to the terms and provisions relating thereto. Neither the
Collateral Agent nor any other Secured Party shall have any obligation or
liability under any instrument, agreement, contract or other document by reason
of or arising out of this Agreement or the granting of a security interest in
any instrument, agreement, contract or other document to the Collateral Agent on
behalf and for the ratable benefit of the Secured Parties of a security interest
therein or the receipt by the Collateral Agent or any other Secured Party of any
payment relating to any of the foregoing pursuant hereto, nor shall the
Collateral Agent or any other Secured Party be required or obligated in any
manner to perform or fulfill any of the obligations of the Grantor thereunder,
or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party thereunder, or to present or file any claim, or to take any action
to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
(b) Subject to the terms of this Agreement, the Collateral Agent authorizes
the Grantor to collect all sums due or to become due (including, without
limitation, Proceeds) in respect of any Collateral ("Collateral Payments"),
provided that such collection is performed in a prudent and businesslike manner,
and the Collateral Agent may, upon the occurrence and during the continuance of
any Default or Event of Default and without notice, limit or terminate said
authority at any time. If required by the Collateral Agent at any time during
the continuance of any Default or Event of Default, any Collateral Payments,
when first collected by the Grantor shall be promptly delivered by the Grantor
to the Collateral Agent in precisely the form received (with all necessary
indorsements), and until so turned over shall be deemed to be held in trust by
the Grantor for and as the Collateral Agent's property, for the benefit of the
Secured Parties, and shall not be commingled with the Grantor's other funds or
properties. Such Collateral Payments, when so delivered to the Collateral Agent,
shall continue to be collateral security for all of the Secured Obligations and
shall not constitute payment thereof until applied as hereinafter provided. The
Collateral Agent shall upon the request of the Required Lenders apply all or a
part of the funds so delivered to the principal of and/or interest on any of the
Secured Obligations in accordance with the provisions of Section 17(h) hereof.
(c) The Collateral Agent may at any time, upon the occurrence and during
the continuance of any Default or Event of Default, notify any party that is or
might become obligated to make any Collateral Payment that the Collateral and
the right, title and interest of the Grantor in and under the Collateral have
been assigned to the Collateral Agent, for the benefit of the Secured Parties,
and that any or all of such Collateral Payments shall be made directly to the
Collateral Agent or its designee. Upon the request of the Collateral Agent, the
Grantor will so notify such parties. Upon the occurrence and during the
continuance of a Default or an Event of Default, the Collateral Agent may in its
own name or in the name of others communicate with all such parties to verify
with such parties to the Collateral Agent's satisfaction the existence, amount
and terms of any such obligation in respect of any Collateral Payment.
8. Representations and Warranties.
------------------------------
<PAGE> 20
20
(a) The Grantor hereby represents and warrants to the Secured Parties as
follows:
(i) The Grantor is the sole owner of each item of the Collateral
in which it purports to grant a security interest hereunder, having good
title thereto, free and clear of any and all Liens or any other right,
title, claim or interest, except for the security interest granted pursuant
to this Agreement.
(ii) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering
all or any part of the Collateral is on file or of record in any public
office, except such as may have been filed by the Grantor in favor of the
Collateral Agent, for the benefit of the Secured Parties, pursuant to this
Agreement.
(iii) Each Mortgage Loan serviced by or on behalf of FHLMC or
FNMA included in the Eligible Servicing Portfolio is covered by a FHLMC
Acknowledgment Agreement or FNMA Acknowledgment Agreement, respectively,
that is in full force and effect.
(iv) Each Approved Non-Agency Mortgage Loan that is included in
the Eligible Servicing Portfolio is covered by an Acknowledgment Agreement
that is in full force and effect.
(v) Except as otherwise provided in Section 28 hereof, all action
necessary to protect and perfect the valid and perfected first priority
security interest in each item of the Collateral has been duly taken
(except to the extent that subsequent delivery of documents or instruments
is permitted herein or in the Credit Agreement in connection with Eligible
Wet Loans).
(vi) The Grantor's principal place of business and the place
where its records concerning the Collateral are kept are set forth on
Schedule I hereto.
(vii) All information heretofore, herein, or hereafter supplied
to the Collateral Agent or any other Secured Party by or on behalf of the
Grantor with respect to the Collateral is accurate and complete in all
material respects.
(viii) No consent of any other Person is required for the grant
of the security interest provided herein by the Grantor in any of the
Collateral, other than consents that have been obtained (subject to any
consents that may relate to Servicing Rights not covered by an
Acknowledgment Agreement), nor will any consent need to be obtained upon
the occurrence of an Event of Default for the Secured Parties to exercise
their rights with respect to any of such Collateral.
(ix) To the best of the Grantor's knowledge, no Obligor or other
Person responsible or liable for any Collateral Payment has any defense,
set off,
<PAGE> 21
21
claim or counterclaim against the Grantor that can be asserted against the
Collateral Agent or any other Secured Party.
(b) The Collateral Agent hereby represents and warrants to the Grantor and
each of the other Secured Parties as follows:
(i) The Collateral Agent is a national banking association duly
incorporated, validly existing and in good standing under the laws of the
United States of America.
(ii) The execution, delivery and performance by the Collateral
Agent of this Agreement are within the Collateral Agent's corporate powers,
have been duly authorized by all necessary corporate action and do not
contravene the Collateral Agent's certificate of incorporation or bylaws,
any Requirement of Law or any order or decree of any court, or any
contractual obligation of the Collateral Agent.
(iii) No consent, authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority or any other
Person is required for the due execution, delivery and performance by the
Collateral Agent of this Agreement.
(iv) This Agreement has been duly executed and delivered by the
Collateral Agent and is the legal, valid and binding obligation of the
Collateral Agent, enforceable against the Collateral Agent in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
9. Additional Representations and Warranties Concerning Mortgage Loans,
--------------------------------------------------------------------
Mortgage-Backed Securities and Servicing Receivables Etc.
- ---------------------------------------------------------
By adding any Mortgage Loan or Mortgage-Backed Security to the HomeSide
Tranche A Borrowing Base or any Servicing Receivable to the HomeSide Tranche B
Borrowing Base in accordance with Section 4 of this Agreement, the Grantor shall
be deemed to represent and warrant to the Secured Parties at and as of the date
of such addition that each of the statements set forth with respect to such
Mortgage Loan, Mortgage-Backed Security or Servicing Receivable in the
definition of Eligible First Mortgage Loan, Eligible Second Mortgage Loan,
Eligible Mortgage-Backed Security, Eligible Early Buyout Advance Receivable,
Eligible Default-Related Advance Receivable, Eligible Foreclosure Advance
Receivable, Eligible Paid-in-Full Buyout Advance Receivable, Eligible P&I
Advance Receivable or Eligible T&I Advance Receivable, as the case may be, is
true and correct. If any such statement may be untrue or incorrect in any
respect at any time, then the Grantor shall promptly so notify the
Administrative Agent and the Collateral Agent by telefacsimile, and such
Mortgage Loan, Mortgage-Backed Security or Servicing Receivable shall be deemed
to have no value for
<PAGE> 22
22
purposes of determining the HomeSide Tranche A Borrowing Base or the HomeSide
Tranche B Borrowing Base, as the case may be (whether or not the Grantor has
given such notice).
10. Standard of Care of Collateral Agent; Duties; Indemnification.
-------------------------------------------------------------
The Collateral Agent is a bailee for hire and shall hold the Collateral in
accordance with customary standards for those engaged as custodians of
commercial documents in similar capacities. Nothing contained herein or in the
Credit Agreement shall be construed to make the Collateral Agent a trustee or
other fiduciary for the Administrative Agent or any other Secured Party.
Notwithstanding anything to the contrary contained herein:
(a) The provisions of the Credit Agreement, this Agreement and the annexes,
schedules, exhibits and attachments hereto set forth the exclusive duties of the
Collateral Agent and no implied duties or obligations shall be read into this
Agreement against the Collateral Agent. The Collateral Agent shall not be bound
in any way by any agreement or contract other than this Agreement and the
annexes, the exhibits and the attachments hereto and any other agreement to
which it is a party. The Collateral Agent shall not be required to ascertain or
inquire as to the performance or observance of any or the conditions or
agreements to be performed or observed by any other party, except as
specifically provided in this Agreement and the annexes, schedules, exhibits and
attachments hereto. The Collateral Agent disclaims any responsibility for the
validity or accuracy of the recitals to this Agreement and any representations
and warranties contained herein, unless specifically identified as recitals,
representations or warranties of the Collateral Agent.
(b) Throughout the term of this Agreement, the Collateral Agent shall have
no responsibility for ascertaining the value, collectability, insurability,
enforceability, effectiveness or suitability (except as otherwise provided by
the Collateral Review Procedures set forth on ATTACHMENT 3 hereto) of any
Collateral, the title of any party therein, the validity or adequacy of the
security afforded thereby or the validity of this Agreement (except as to
Collateral Agent's authority to enter into this Agreement and to perform its
obligations hereunder).
(c) The Collateral Agent shall not be under any duty to examine or pass
upon the genuineness, validity, or legal sufficiency of any of the documents
constituting part of any Mortgage Loan file, including, without limitation,
whether any document purporting to be an assignment is in recordable form or
whether any Evidence of Notice to Customer and Rescission is in compliance with
Regulation Z or other applicable law, and shall be entitled to assume that all
documents constituting part of such files are genuine and valid and that they
are what they purport to be and that any endorsements or assignments thereof are
genuine and valid. The Collateral Agent may rely upon and shall be protected in
acting in good faith upon any notice, resolution, request, consent, order,
certificate, report, statement or other paper or document appearing on its face
to be genuine and to have been signed or presented by the proper party or
parties or by a person or persons authorized to act on behalf of the proper
party or parties. The Collateral Agent shall not be liable for any action or
omission to act as bailee, except for its own gross negligence or willful
misconduct.
<PAGE> 23
23
(d) No provision of this Agreement shall require the Collateral Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if, in its judgment, it shall believe that repayment of such
funds or adequate indemnity against such risk or liability is not assured to it.
(e) The Collateral Agent is not responsible for preparing or filing any
reports or returns relating to federal, state or local income taxes with respect
to this Agreement, other than for the Collateral Agent's compensation or for
reimbursement of expenses.
(f) The Grantor agrees to reimburse, indemnify and hold harmless the
Collateral Agent and its directors, officers, employees, Affiliates and agents
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, reasonable attorneys' fees and disbursements and allocated costs of
internal counsel) or disbursements of any kind or nature that may be imposed on,
incurred by or asserted against the Collateral Agent and its directors,
officers, employees, Affiliates and agents arising from or connected with the
Collateral Agent's execution and performance of this Agreement, including, but
not limited to, the claims of any third parties, including any assignee. The
foregoing shall apply regardless of whether such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements are in any way or to any extent caused, in whole or in part, by
any negligent act or omission of any kind by the Collateral Agent; PROVIDED that
the Grantor shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments' suits, costs,
expenses or disbursements resulting from gross negligence or willful misconduct
on the part of the Collateral Agent. This provision shall survive the
termination of this Agreement.
(g) At its sole cost and expense, the Collateral Agent shall have the power
to employ such agents as it may deem necessary or appropriate in the performance
of its duties and the exercise of its powers under this Agreement.
11. Fees and Expenses of Collateral Agent.
-------------------------------------
The Collateral Agent shall notify the Grantor of all reasonable fees,
expenses, and charges of the Collateral Agent arising out of the Collateral
Agent's entering into this Agreement and performing its duties and obligations
under this Agreement (including in connection with the enforcement of remedies
hereunder and realization upon the Collateral), and (except as set forth in
Section 10(g) hereof) such fees, expenses and charges shall be paid promptly by
the Grantor or, if already paid by the Collateral Agent, the Grantor shall
reimburse the Collateral Agent promptly therefor. The Collateral Agent shall
receive reasonable additional compensation from the Grantor for services
rendered beyond those specifically enumerated in this Agreement, PROVIDED that
the Collateral Agent shall, to the extent possible, provide reasonable advance
notice to the Grantor of such services and its estimate of fees, expenses and
charges in connection therewith. The Collateral Agent may employ, at the
Grantor's expense, such legal counsel and other experts as it reasonably deems
necessary in connection with entering into this Agreement and performing its
duties and obligations under this Agreement. The Collateral
<PAGE> 24
24
Agent may rely upon and shall be protected if acting in good faith upon the
advice of such legal counsel or experts.
12. Removal or Resignation of Collateral Agent.
------------------------------------------
The Administrative Agent, upon the direction of the Required Lenders, may,
at any time, remove and discharge the Collateral Agent from the performance of
its duties under this Agreement, effective (a) immediately if such termination
is for cause or (b) upon not less than thirty (30) days' prior written notice to
the Collateral Agent and the Grantor if such termination is without cause. In
addition, the Collateral Agent may, at any time, terminate its agreement to act
as the Collateral Agent hereunder, effective upon sixty (60) days' prior written
notice to the Grantor, the Administrative Agent and the Lenders. Upon the
effective date of any such termination, the Collateral Agent shall promptly
deliver the Collateral then held by it and any and all books and records (or
copies thereof) relating thereto, to the Administrative Agent or to such other
person or entity as the Administrative Agent may direct in writing, and shall
cooperate with the Administrative Agent and any successor Collateral Agent in
order to effect the orderly transfer of the Collateral and the rights and
obligations of the Collateral Agent hereunder to any successor Collateral Agent.
Upon resignation or removal of the Collateral Agent hereunder, the
Administrative Agent and the Required Lenders shall appoint a successor
Collateral Agent. If no successor Collateral Agent shall have been so appointed,
and shall have accepted such appointment, before the end of the thirty (30) or
sixty (60) day period referred to above, as the case may be, then the
Administrative Agent (or, at the discretion of the Administrative Agent, an
Affiliate of the Administrative Agent) shall succeed as Collateral Agent.
13. Availability of Documents.
-------------------------
The Administrative Agent and each other Secured Party and its agents,
accountants, attorneys and auditors will be permitted during normal business
hours at any time and from time to time upon reasonable notice to the Collateral
Agent to examine and inspect (to the extent permitted by applicable law) the
files, documents, records and other papers in the possession or under the
control of the Collateral Agent relating to any or all of the Collateral and to
make copies thereof. As long as no Default or Event of Default has occurred and
is continuing, any such activity will be at no cost or expense to the Grantor;
if a Default or Event of Default has occurred and is continuing, all costs and
expenses associated with the exercise by the Administrative Agent or any other
Secured Party of its rights under this Section 13 shall be paid by the Grantor
within fifteen (15) days of receipt by the Grantor from the Administrative Agent
or such other Secured Party of a statement setting forth in reasonable detail
the amount thereof.
14. Covenants.
---------
The Grantor covenants and agrees with the Collateral Agent and the other
Secured Parties that from and after the date of this Agreement and until the
Secured Obligations are fully satisfied:
<PAGE> 25
25
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL PAPER. At any
time and from time to time, upon the written request of the Collateral Agent,
and at the sole expense of the Grantor, the Grantor will promptly and duly
execute and deliver any and all such further instruments and documents and take
such further action as the Collateral Agent may reasonably deem necessary or
desirable to obtain the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
the Collateral Agent of any Collateral held by the Grantor or in which the
Grantor has any rights not heretofore assigned, the filing of any financing or
continuation statements under the UCC with respect to the Liens and security
interests granted hereby and transferring Collateral to the Collateral Agent's
(or its bailee's) possession (if a security interest in such Collateral can be
perfected by possession). The Grantor also hereby authorizes the Collateral
Agent to file any such financing or continuation statement without the signature
of the Grantor to the extent permitted by applicable law. If any of the
Collateral shall be or become evidenced by any instrument, the Grantor agrees to
pledge such instrument to the Collateral Agent and shall duly endorse such
instrument in a manner satisfactory to the Collateral Agent and deliver the same
to the Collateral Agent. The Grantor shall hold any such instrument in its
possession in trust for the benefit of the Secured Parties until the delivery
thereof to the Collateral Agent as provided herein.
(b) MAINTENANCE OF RECORDS. The Grantor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Collateral and all other dealings with the Collateral. The
Grantor will mark its books and records pertaining to the Collateral to evidence
this Agreement and the Lien and security interests granted hereby. For the
Collateral Agent's and the other Secured Parties' further security, the Grantor
agrees that the Collateral Agent and the other Secured Parties shall have a
special property interest in all of the Grantor's books and records pertaining
to the Collateral and, upon the occurrence and during the continuance of any
Default or Event of Default, the Grantor shall deliver and turn over any such
books and records to the Collateral Agent or to its representatives at any time
on demand of the Collateral Agent.
(c) INDEMNIFICATION. In any suit, proceeding or action brought by the
Collateral Agent or any other Secured Party relating to all or any portion of
the Collateral or any Collateral Payment for any sum owing thereunder, or to
enforce any right in respect of the Collateral or any Collateral Payment, the
Grantor will indemnify and save and keep harmless the Collateral Agent and each
of the other Secured Parties from and against all expense, loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by the Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from the Grantor, and all such obligations of the
Grantor shall be and remain enforceable against and only against the Grantor and
shall not be enforceable against the Collateral Agent or any other Secured
Party.
(d) COMPLIANCE WITH LAWS, ETC. The Grantor will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and directions of
any Governmental
<PAGE> 26
26
Authority, applicable to the Collateral or any part thereof or to the operation
of the Grantor's business; PROVIDED, HOWEVER, that the Grantor may contest any
act, regulation, order, decree or direction in any reasonable manner which shall
not, in the sole opinion of the Collateral Agent, adversely affect the
Collateral Agent's rights hereunder or adversely affect the first priority of
its Lien on and security interest in the Collateral for the benefit of the
Secured Parties.
(e) PAYMENT OF OBLIGATIONS. The Grantor will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom and all claims of
any kind (including, without limitation, claims for labor, materials and
supplies), except that no such charge need be paid if (i) such non-payment does
not involve any danger of the sale, forfeiture or loss of any of the Collateral
or any interest therein, and (ii) such charge is adequately reserved against in
accordance with and to the extent required by GAAP.
(f) COMPLIANCE WITH TERMS OF AGREEMENTS, ETC. In all material respects, the
Grantor will comply with and perform with all obligations, covenants, conditions
and other agreements with respect to any of the Collateral and all other
agreements related thereto to which it is a party or by which it is bound.
(g) LIMITATION ON LIENS ON COLLATERAL. The Grantor will not create, permit
or suffer to exist, and will defend the Collateral against and take such other
action as is necessary to remove, any Lien on the Collateral except the Liens
created under this Agreement and the other Loan Documents, and will defend the
right, title and interest of the Collateral Agent and the other Secured Parties
in and to any of the Grantor's rights in and under the Collateral and in and to
the Proceeds thereof against the claims and demands of all Persons whomsoever.
(h) LIMITATIONS ON DISPOSITION. The Grantor will not sell, lease, transfer
or otherwise dispose of any of the Collateral, or attempt or contract to do so,
except as permitted by the Credit Agreement, this Agreement or the other Loan
Documents.
(i) FURTHER IDENTIFICATION OF COLLATERAL. The Grantor will, if so requested
by the Collateral Agent, furnish to the Collateral Agent, as often as the
Collateral Agent reasonably requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
(j) NOTICES. The Grantor will advise the Collateral Agent promptly, in
reasonable detail, (i) of any Lien or claim made or asserted against any of the
Collateral, (ii) of any material change in the composition of the Collateral,
and (iii) of the occurrence of any other event which would have a material
adverse effect on the aggregate value of the Collateral or on the security
interests created hereunder.
(k) RIGHT OF INSPECTION. Upon reasonable notice to the Grantor (unless a
Default or an Event of Default has occurred and is continuing, in which case no
notice is necessary), the Collateral Agent, each of the other Secured Parties,
and their respective agents,
<PAGE> 27
27
accountants, attorneys and auditors shall at all times have full and free access
during normal business hours to all the files, documents, records and other
papers of the Grantor, and the Collateral Agent, each of the other Secured
Parties and their respective agents, accountants, attorneys and auditors may
examine the same, take extracts therefrom and make photocopies thereof, and the
Grantor agrees to render to the Collateral Agent, at the Grantor's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto.
(l) CONTINUOUS PERFECTION. The Grantor will not change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless the Grantor shall have given the Collateral Agent
at least 30 days' prior written notice thereof and shall have taken all action
(or made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by the Collateral Agent to amend such financing statement
or continuation statement so that it is not seriously misleading. The Grantor
will not change its principal place of business or remove its records, each as
set forth on Schedule I hereto, unless it gives the Collateral Agent at least 30
days' prior written notice thereof and has taken such action as is necessary to
cause the security interest of the Collateral Agent in the Collateral to
continue to be perfected.
(m) INSURANCE. The Grantor will keep the Collateral insured against loss,
damage, then and other risks customarily covered by insurance and such other
risks as the Collateral Agent may reasonably request.
(n) OTHER ACTS. The Grantor will do all acts that a prudent investor would
deem necessary or desirable to maintain, preserve and protect the Collateral.
(o) DEFENSE OF ACTIONS. The Grantor will appear in and defend, at the
Grantor's sole cost and expense (unless such action or proceeding arises solely
from an act or failure to act by a Secured Party which act or failure to act is
determined to be gross negligence or willful misconduct), any action or
proceeding that may affect its title to or the Secured Parties' interest in the
Collateral.
(p) REPORTS. Within five Business Days after the end of each calendar
month, the Grantor will provide to the Administrative Agent and the Collateral
Agent a report in respect of each type of Eligible Servicing Receivable, which
report shall be set forth (a) except for Eligible P&I Advance Receivables, in
loan-level detail (including, without limitation, loan number, mortgagor name
and receivable amount), and (b) with respect to Eligible P&I Receivables, by
investor remittance type, in each case, in form and substance satisfactory to
the Administrative Agent.
15. The Collateral Agent's Appointment as Attorney-in-Fact.
------------------------------------------------------
(a) The Grantor hereby irrevocably constitutes and appoints the Collateral
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful
<PAGE> 28
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attorney-in-fact with full irrevocable power and authority in the place and
stead of the Grantor and in the name of the Grantor or in its own name, from
time to time in the Collateral Agent's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which the Collateral
Agent may deem necessary or desirable to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, hereby gives
the Collateral Agent the power and right, on behalf of the Grantor, without
notice to or assent by the Grantor to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any Collateral
and, in the name of the Grantor or in its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by the
Collateral Agent for the purpose of collecting any and all such moneys due
under any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Collateral Agent for the purpose of collecting
any and all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) (A) to direct any party liable for any Collateral Payment
under any of the Collateral to make any and all Collateral Payments due and
to become due thereunder, directly to the Collateral Agent or as the
Collateral Agent shall direct; (B) to receive payment of and receipt for
any and all moneys, claims and other amounts due and to become due at any
time, in respect of or arising out of any Collateral; (C) to sign and
indorse any invoices, freight or express bills, bills of lading, storage,
trust or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other documents
constituting or relating to the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against the Grantor with respect to any
Collateral; (F) to settle. compromise or adjust any suit, action or
proceeding described above and, in connection therewith. to give such
discharges or releases as the Collateral Agent may deem appropriate; (G) to
license or, to the extent permitted by an applicable license, sublicense,
whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any patent or trademark constituting Collateral,
throughout the world for such term or terms, on such conditions, and in
such
<PAGE> 29
29
manner, as the Collateral Agent shall in its sole discretion determine; and
(H) generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all
purposes, and to do, at the Collateral Agent's option and the Grantor's
expense, at any time, or from time to time, all acts and things which the
Collateral Agent reasonably deems necessary to protect, preserve or realize
upon the Collateral and the Collateral Agent's and the other Secured
Parties' Lien therein, in order to effect the intent of this Agreement, all
as fully and effectively as the Grantor might do.
(b) The Collateral Agent agrees that, except upon the occurrence and during
the continuance of any Default or Event of Default, it will forbear from
exercising the power of attorney or any rights granted to the Collateral Agent
pursuant to this Section 15. The Grantor hereby ratifies, to the extent
permitted by law, all that any said attorney shall lawfully do or cause to be
done by virtue hereof. The power of attorney granted pursuant to this Section
15, being coupled with an interest, shall be irrevocable until the Secured
Obligations are indefeasibly paid in full.
(c) The powers conferred on the Collateral Agent hereunder are solely to
protect the Collateral Agent's and the other Secured Parties' interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Collateral Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to the Grantor
for any act or failure to act, except for its own gross negligence or willful
misconduct.
(d) The Grantor also authorizes the Collateral Agent, at any time and from
time to time upon the occurrence and during the continuance of a Default or
Event of Default, (i) to communicate in its own name with any party to any
contract, instrument, agreement or document constituting Collateral with regard
to the assignment of the right, title and interest of the Grantor therein and
thereunder and other matters relating thereto and (ii) to execute, in connection
with the sale provided for in Section 17 hereof, any indorsements, assignments
or other instruments of conveyance or transfer with respect to the Collateral.
16. Performance by the Collateral Agent of the Grantor's Obligations.
----------------------------------------------------------------
If the Grantor fails to perform or comply with any of its agreements
contained herein and the Collateral Agent, as provided for by the terms of this
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses of the Collateral Agent
incurred in connection with such performance or compliance, together with
interest thereon at the highest rate then in effect in respect of the Loans,
shall be payable by the Grantor to the Collateral Agent on demand and shall
constitute Secured Obligations secured hereby.
<PAGE> 30
30
17. Remedies, Rights Upon an Event of Default.
-----------------------------------------
(a) If any Event of Default shall occur and be continuing, the Collateral
Agent shall, at the request of the Administrative Agent (acting upon the
direction of the Required Lenders), or may with the consent of the
Administrative Agent (acting upon the direction of the Required Lenders),
exercise in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, all rights and remedies of a secured party
under the UCC or as otherwise provided by applicable law or in equity. Without
limiting the generality of the foregoing, the Grantor expressly agrees that in
any such event the Collateral Agent, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon the Grantor or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith (i) enter onto property where any Collateral or books and
records relating thereto are located and take possession thereof with or without
judicial process, (ii) prior to the disposition of any Collateral, prepare such
Collateral for disposition in any manner and to the extent the Administrative
Agent or Collateral Agent deems appropriate, (iii) collect, receive, appropriate
and realize upon the Collateral, or any part thereof, and/or sell, lease,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at public or private sale or sales, at any exchange or broker's
board or any of the Collateral Agent's offices or elsewhere at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Collateral Agent or any other Secured Party shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold. Each purchaser at any such sale or other disposition
shall hold the Collateral free from any claim or right of whatever kind,
including, without limitation, any equity or right of redemption of the Grantor,
and the Grantor specifically waives and releases (to the extent permitted by
law) all rights of redemption, stay, or appraisal that it has or may have under
any rule of law or statute now existing or hereafter adopted. The Grantor
further agrees, at the Collateral Agent's request, to assemble the Collateral
and make it available to the Collateral Agent at places which the Collateral
Agent shall reasonably select, whether at the Grantor's premises or elsewhere.
The Collateral Agent shall apply the net proceeds of any such collection,
recovery receipt, appropriation, realization or sale, as provided in Section
17(h) hereof, the Grantor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by the Collateral Agent of any other amount required by any
provision of law, including Section 9-504(1)(c) of the UCC, need the Collateral
Agent account for the surplus, if any, to the Grantor. To the maximum extent
permitted by applicable law, the Grantor waives all claims, damages, and demands
against the Secured Parties arising out of the repossession, retention or sale
of the Collateral. The Grantor agrees that the Collateral Agent need not give
more than ten days' notice of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. The Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Secured Parties are entitled, the
Grantor also being liable for the fees and expenses of any
<PAGE> 31
31
attorneys employed by the Collateral Agent and the other Secured Parties to
collect such deficiency. Upon the exercise by the Collateral Agent of any remedy
hereunder, the Grantor shall (x) upon request of the Collateral Agent, deliver
to the Collateral Agent all computer software, tapes, records, documents, escrow
deposits and other deposits in its possession or under its control relating to
the Collateral, and (y) cooperate with the Collateral Agent in every respect in
effecting such delivery.
(b) In furtherance and not in limitation of the rights of the Collateral
Agent set forth in this Section 17, upon the acceleration of the maturity of the
Loans or other Secured Obligations as provided in the Credit Agreement, at the
request and direction of the Administrative Agent, the Collateral Agent may, in
addition to any other rights it may have, do one or more of the following,
subject to the terms of the relevant Servicing Contract, Acknowledgment
Agreement, Agency Guide or applicable law (it being understood that if there is
any conflict between any such relevant Servicing Contract, Acknowledgment
Agreement, Agency Acknowledgment Agreement, Agency Guide or applicable law and
this Agreement, then the terms of such Servicing Contracts, Acknowledgment
Agreement, Agency Acknowledgment Agreement, Agency Guide or applicable law shall
prevail):
(i) succeed the Grantor as servicer under any or all of the
Servicing Contracts as absolute assignee thereof and not merely as
security;
(ii) appoint a third party as successor servicer under any or
all of the Servicing Contracts;
(iii) sell to a third party or itself or otherwise transfer any
of the Grantor's right, title, interest or obligations with respect to the
Servicing Contracts, including without limitation the right to hold and/or
place the escrow deposits associated therewith; or
(iv) require the Grantor, notwithstanding any action taken by the
Collateral Agent under clause (iii), to remain as servicer under any
Servicing Contract for a reasonable period of time, such period not to
exceed 180 days.
Notwithstanding anything herein to the contrary, the Collateral Agent shall have
no obligations as servicer under any Servicing Contracts unless and until the
Collateral Agent has succeeded the Grantor as servicer of such Mortgage Loans
pursuant to this subsection (b).
(c) The Collateral Agent's rights under clauses (i), (ii) and (iii) of
subsection (b) above shall respectively include, without limitation, the right
to succeed the Grantor as servicer, appoint a successor servicer or transfer any
or all of its rights with respect to the Servicing Rights and/or the Servicing
Contracts of the Grantor, or any successor to the Grantor in bankruptcy or
similar proceedings, rejects any Servicing Contracts. As successor servicer
under such clause (i), the Collateral Agent shall notify all interested Persons
thereof and take such further action as it shall deem necessary or appropriate.
Upon the Collateral Agent's (x) succeeding the Grantor as servicer under such
clause (i), (y) appointing a third party as a
<PAGE> 32
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successor servicer under any Servicing Contract under such clause (ii), or (z)
transferring any of the Grantor's right, title, interest and obligations under
such clause (iii), the Grantor shall have no further rights under or with
respect to the Servicing Rights (or to such rights, title, interest or
obligations in the case of a transfer under clause (iii)), to any other
documents pertaining thereto or to the related escrow deposits.
(d) Upon the exercise by the Collateral Agent of any remedy set forth in
subsection (b) or (c) above, the Grantor shall:
(i) upon request of the Collateral Agent, deliver to the
Collateral Agent all computer software, tapes, records, documents, escrow
deposits and other deposits in its possession or under its control relating
to the Collateral, and
(ii) cooperate with the Collateral Agent in every reasonable
respect in effecting the succession of a successor servicer.
(e) If the Collateral Agent or any appointee of the Collateral Agent
succeeds the Grantor as successor servicer under any Servicing Contract, the
Collateral Agent or such appointee, as the case may be, shall only assume those
obligations that a successor servicer under such Servicing Contract is obligated
to assume; PROVIDED that neither the Collateral Agent or its appointee nor any
other Secured shall be liable for any failure of the Grantor to perform its
obligations under any Servicing Contract or for any other breach thereof.
Nothing herein contained shall be construed as an assumption by the Collateral
Agent or its appointee or any other Secured Party of any liability of the
Grantor with respect to any of the Collateral, and the Grantor shall be and
remain responsible for all such liabilities.
(f) The Grantor also agrees to pay all reasonable costs and expenses of the
Collateral Agent and each of the other Secured Parties, including, without
limitation, attorneys' fees, incurred in connection with the enforcement of any
of their rights and remedies hereunder.
(g) The Grantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral.
(h) The Proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be distributed by the Collateral Agent in the
following order of priorities:
First, to the payment of the costs and expenses of such sale,
disposition or other realization, including, without limitation, all
expenses of the Collateral Agent and its agents including the fees and
expenses of its counsel, and all expenses, liabilities and advances made or
incurred by the Collateral Agent and the other Secured Parties in
connection therewith or pursuant to Section 7 hereof;
<PAGE> 33
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Next, to the Administrative Agent, for distribution by it in
accordance with the terms of the Credit Agreement; and
Finally, after payment in full of all the Secured Obligations, to the
payment to the Grantor, or its successors or assigns, or to whomsoever may
be lawfully entitled to receive the same as a court of competent
jurisdiction may direct.
18. Limitation on the Secured Parties' Duty in Respect of Collateral.
----------------------------------------------------------------
No Secured Party shall have any duty as to any Collateral in its possession
or control or in the possession or control of any agent or nominee of it or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except that each Secured Party shall use
reasonable care with respect to the Collateral in its possession or under its
control. Upon request of the Grantor, the Collateral Agent shall account for any
moneys received by it in respect of any foreclosure on or disposition of the
Collateral.
19. Rights with Respect to GNMA; Acknowledgment Agreements.
------------------------------------------------------
(a) Notwithstanding anything contained herein or in any of the other Loan
Documents to the contrary, the Collateral Agent, by executing this Agreement,
and each of the other Secured Parties, by executing the Credit Agreement,
acknowledge that (a) the Grantor is entitled to servicing income with respect to
any GNMA pool of Mortgage Loans only so long as the Grantor is a GNMA
Issuer/Servicer in good standing; (b) upon the Grantor's loss of such good
standing status, the Secured Parties' rights to any such servicing income also
terminate; and (c) the pledge of rights to servicing income with respect to any
GNMA pool of Mortgage Loans hereunder conveys no rights (such as the right to
become a substitute servicer) that are not otherwise specifically provided for
in the applicable GNMA Guide. Notwithstanding anything contained herein or in
the other Loan Documents to the contrary, to the extent that any Acknowledgment
Agreement is executed and delivered by FNMA and such agreement or the FNMA Guide
relating thereto provides that the Grantor may not pledge security interests in
rights relating to servicing income to secure Loans, the proceeds of which Loans
are used for purposes prohibited by such agreement or FNMA Guide, then the
Collateral Agent and the other Secured Parties shall not be deemed to have such
a security interest to the extent such security interest serves as collateral
for such prohibited use; provided that nothing contained herein shall affect the
validity or enforceability of (x) security interests in such rights pledged to
secure Loans whose purposes are not prohibited and (y) the assignment of the
proceeds of such rights to the Secured Parties, and provided further that if at
any time the use of the proceeds of such Loans is no longer prohibited, then
such security interest shall be valid, binding, perfected, enforceable and in
full force and effect.
(b) The security interest created by this Agreement is subject and
subordinate to all rights, powers, and prerogatives of FNMA under and in
connection with (i) the terms and conditions of that certain Acknowledgment
Agreement, with respect to the security interest created hereunder, by and
between FNMA, the Grantor and the Collateral Agent, (ii) the
<PAGE> 34
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Mortgage Selling and Servicing Contract and all applicable Pool Purchase
Contracts between FNMA and the Grantor, and (iii) the FNMA Guide, as such Guide
is amended from time to time ((ii) and (iii) collectively, the "FNMA Contract"),
which rights, powers, and prerogatives include, without limitation, the right of
FNMA to terminate the FNMA Contract with or without cause and the right to sell,
or have transferred, the Servicing Rights as therein provided.
(c) The security interest referred to in this Agreement is subject and
subordinate in each and every respect (a) to all rights, powers and prerogatives
of one or more of the following: FHLMC, FNMA, GNMA, or such other investors that
own mortgage loans, or which guaranty payments on securities based on and backed
by pools of mortgage loans, identified herein (the "Investors"); and (b) to all
claims of an Investor arising out of any and all defaults and outstanding
obligations of the debtor to the Investor. Such rights, powers and prerogatives
of the Investors may include, without limitation, one or more of the following:
the right of an Investor to disqualify the Grantor from participating in a
mortgage selling or servicing program or a securities guaranty program with such
Investor; the right to terminate contract rights of the Grantor relating to such
a mortgage selling or servicing program or securities guaranty program; and the
right to transfer and sell all or any portion of such contract rights following
the termination of those rights.
20. Notices.
-------
All notices and other communications provided for hereunder shall be in
writing (including telegraphic, telex, telecopy, or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, addressed
to any party hereto at the address of such party specified in the Credit
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other communications shall, when
mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when
deposited in the mails, delivered to the telegraph company, confirmed by telex
answerback, telecopied with confirmation of receipt, delivered to the cable
company, or delivered by hand to the addressee or its Collateral Agent,
respectively.
21. Amendments, Etc.
---------------
No amendment or waiver of any provision of this Agreement or consent to any
departure by the Grantor therefrom shall in any event be effective unless the
same shall be in writing, signed by the Grantor, the Administrative Agent (upon
the direction of the Required Lenders or all of the Lenders, as required by the
Credit Agreement) and the Collateral Agent, and then any such waiver or consent
shall only be effective in the specific instance and for the specific purpose
for which given.
22. No Waiver; Remedies.
-------------------
(a) No failure on the part of any Secured Party to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial
<PAGE> 35
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exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative,
may be exercised singly or concurrently, and are not exclusive of any remedies
provided by law or any of the other Loan Documents.
(b) Failure by any of the Secured Parties at any time or times hereafter to
require strict performance by the Grantor or any other Person of any of the
provisions, warranties, terms or conditions contained in any of the Loan
Documents now or at any time or times hereafter executed by the Grantor or any
such other Person and delivered to any of the Secured Parties shall not waive,
affect or diminish any right of any of the Secured Parties at any time or times
hereafter to demand strict performance thereof, and such right shall not be
deemed to have been modified or waived by any course of conduct or knowledge of
any of the Secured Parties, or any agent, officer or employee of any Secured
Party.
23. Successors and Assigns.
----------------------
This Agreement and all obligations of the Grantor hereunder shall be
binding upon the successors and assigns of the Grantor, and shall, together with
the rights and remedies of the Collateral Agent hereunder, inure to the benefit
of the Collateral Agent, each of the other Secured Parties, and their respective
successors and assigns. Notwithstanding the foregoing, the Grantor may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender, the Administrative Agent and the
Collateral Agent.
24. Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
25. Entire Agreement; Severability.
------------------------------
This Agreement and the other Loan Documents constitute the entire agreement
and understanding between the parties hereto and supersede any and all prior or
contemporaneous agreements and understandings of such Persons, oral or written,
relating to the subject matter hereof and thereof. In addition, there are no
promises, undertakings, representations or warranties by the Collateral Agent or
any other Secured Party relating to the subject matter hereof not expressly set
forth or referred to herein or in the other Loan Documents. All waivers by the
Grantor provided for in this Agreement have been specifically negotiated by the
parties with full cognizance and understanding of their respective rights. If
any of the provisions of this Agreement shall be held invalid or unenforceable,
this Agreement shall be construed as if not containing such provisions, and the
rights and obligations of the parties hereto shall be construed and enforced
accordingly.
<PAGE> 36
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26. Waiver of Jury Trial.
--------------------
EACH OF THE GRANTOR, THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THE CREDIT AGREEMENT
OR UNDER ANY OF THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT RELATING TO ANY
OF THE FOREGOING.
27. Further Indemnification.
-----------------------
The Grantor agrees to pay, and to save the Collateral Agent and each other
Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
28. Release and Reinstatement.
-------------------------
(a) During any Positive Security Period, upon the written request of the
Grantor and subject to the conditions precedent set forth below, the Collateral
Agent shall release the Collateral from the Lien in favor of the Collateral
Agent for the benefit of the Secured Parties hereunder and, as evidence of such
release of Lien, shall execute and deliver to the Grantor (i) a confirmation of
such release in the form of that attached hereto as ATTACHMENT 9, (ii) such UCC
termination statements as are necessary to terminate all existing UCC-1
financing statements covering the Collateral filed by the Collateral Agent on
behalf of the Secured Parties and (iii) such notices and instructions to all
appropriate Persons to release such Lien on any Mortgage-Backed Security, it
being expressly acknowledged and agreed by the Collateral Agent, the Agent and
the Grantor that during any Positive Security Period the Secured Obligations are
intended to be and become unsecured obligations. During the effectiveness of a
Positive Security Period, the Borrower, in lieu of the Collateral Agent, will
maintain possession of the Collateral as set forth herein, and shall utilize a
trust receipt in the form of that attached hereto as ATTACHMENT 5-B and letters
in the forms of those attached hereto as ATTACHMENT 7-C, ATTACHMENT 7-E and
ATTACHMENT 7-G in releasing Collateral to the Grantor and shipping Collateral
pursuant hereto in lieu of the trust receipt form attached hereto as ATTACHMENT
5-A and the letters attached hereto as ATTACHMENT 7-B, ATTACHMENT 7-D and
ATTACHMENT 7-F, respectively. As conditions precedent to the release of Lien
contemplated hereby:
(i) Immediately prior to and immediately following the release
of Lien contemplated hereby, there shall not exist any Default or Event of
Default;
(ii) There shall exist a Positive Security Period both
immediately prior to and immediately following the release of Lien
contemplated hereby; and
<PAGE> 37
37
(iii) The Grantor shall have executed and conditionally delivered
to the Collateral Agent new UCC-1 financing statements in form and
substance acceptable to the Collateral Agent accompanied by the Grantor's
irrevocable written authorization for the Collateral Agent to file such
UCC-1 financing statements upon the occurrence of a Negative Security
Event.
(b) Nothing contained in this Section 28 shall in any manner or to any
extent affect the obligations of the Grantor hereunder and under the other Loan
Documents, it being expressly acknowledged and agreed by the Grantor that the
release of the Lien contemplated hereby shall not affect the terms and
provisions of the Loan Documents except to the extent that during any Positive
Security Period, the Secured Obligations shall not be secured by the Collateral,
PROVIDED that notwithstanding the other provisions of this Agreement to the
contrary, during the effectiveness of any Positive Security Period, each
document to be delivered to or held by the Collateral Agent shall be delivered
to or held by the Borrower in lieu thereof, and each review and report to be
undertaken or signed by the Collateral Agent shall be undertaken or signed by
the Borrower in lieu thereof.
(c) If following the Closing Date or the release of the Lien contemplated
by subparagraph (a) above there shall occur a Negative Security Event:
(i) The Grantor shall automatically be deemed to assign, convey,
mortgage, pledge, hypothecate and transfer to the Collateral Agent, on
behalf and for the ratable benefit of the Secured Parties, and
automatically be deemed to grant to the Collateral Agent, on behalf and for
the ratable benefit of the Secured Parties, a security interest in, and
effective upon the occurrence of such Negative Security Event hereby does
so assign, convey, mortgage, pledge, hypothecate and transfer to the
Collateral Agent, for the ratable benefit of the Secured Parties, hereby
does so grant a security interest in, the Collateral, including, without
limitation, all Collateral then in the possession of the Collateral Agent,
as collateral security for the Secured Obligations;
(ii) The Collateral Agent shall no later than five Business Days
following receipt of notification from the Administrative Agent of such
Negative Security Event (A) record the UCC-1 financing statements
previously delivered to it pursuant to subparagraph (a)(iii) above and (B)
commence to utilize the trust receipt in the form of that attached hereto
as ATTACHMENT 5-A and the letters in the forms of those attached hereto as
ATTACHMENT 7-B, ATTACHMENT 7-D and ATTACHMENT 7-F in releasing Collateral
to the Grantor and shipping Collateral pursuant to this Agreement; and
(iii) The Grantor shall take such other actions and execute and
deliver such additional documents, instruments and agreements as the
Administrative Agent, the Collateral Agent and the Required Lenders shall
reasonably request to obtain for the Secured Parties the benefit of the
Collateral.
<PAGE> 38
38
(d) The reinstatement of the Lien of the Collateral Agent for the benefit
of the Secured Parties on the Collateral following a Negative Security Event
shall in no manner affect the rights, powers and remedies of the Collateral
Agent or the other Secured Parties otherwise available under the Loan Documents,
including, without limitation, the right to accelerate the Secured Obligations
and to refuse to make further Loans under the Credit Agreement in the event
there exists a Default or an Event of Default.
(e) Upon the written request of the Grantor, so long as no Default or Event
of Default has occurred and is continuing or would result therefrom, from time
to time (but in no event more frequently than once per calendar quarter) the
Collateral Agent shall, at the sole cost and expense of the Grantor, release
Servicing Receivables and any other Servicing Rights arising in connection with
Servicing Contracts with Approved Investors (other than an Agency) which do not
constitute Eligible Servicing Receivables or otherwise constitute part of the
Eligible Servicing Portfolio and which are not included in the HomeSide Tranche
B Borrowing Base from the Lien in favor of the Collateral Agent for the benefit
of the Secured Parties hereunder and, as evidence of such release of Lien, shall
execute and deliver to the Grantor (i) a confirmation of such release in a form
reasonably satisfactory to the Grantor, the Collateral Agent and the
Administrative Agent, and (ii) such UCC amendments as are necessary to amend all
existing UCC-1 financing statements covering the Servicing Receivables so
released.
(f) Upon the written request of the Grantor, so long as no Default or Event
of Default has occurred and is continuing or would result therefrom, from time
to time (but in no event more frequently than once per calendar quarter) the
Collateral Agent shall, at the sole cost and expense of the Grantor, release
Mortgage Loans constituting Collateral which are not included in the HomeSide
Tranche A Borrowing Base from the Lien in favor of the Collateral Agent for the
benefit of the Secured Parties hereunder and, as evidence of such release of
Lien, shall execute and deliver to the Grantor (i) a confirmation of such
release in a form reasonably satisfactory to the Grantor, the Collateral Agent
and the Administrative Agent, and (ii) such further documents as are necessary
to effect and evidence the release of such Lien on such Mortgage Loans.
29. Survival of Representations.
---------------------------
All covenants, agreements, representations and warranties made herein shall
survive the making by the Lenders of the Loans and the execution and delivery to
the Administrative Agent for the account of the Lenders of the Notes regardless
of any investigation made by the Collateral Agent or any of the other Secured
Parties and of the Collateral Agent's and the other Secured Parties' access to
any information and shall continue in full force and effect so long as any
Secured Obligation is unpaid or unperformed.
30. Section Titles.
--------------
The Section titles contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of this
Agreement.
<PAGE> 39
39
31. Execution in Counterparts.
-------------------------
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered by its duly authorized officer on the date first above
written.
HOMESIDE LENDING, INC.
By:
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By:
---------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
---------------------------------
Name:
Title:
<PAGE> 40
40
SCHEDULE I TO SECURITY AND COLLATERAL AGENCY AGREEMENT
LOCATION OF RECORDS AND CERTAIN COLLATERAL
------------------------------------------
Principal Place of Business:
7301 Baymeadows Way
Jacksonville, Florida 32256
Location of Records:
7301 Baymeadows Way
Jacksonville, Florida 32256
<PAGE> 41
41
List of Attachments
-------------------
Attachment 1-A HomeSide Tranche A Borrowing Base Addition Report (Mortgage
Loans)
Attachment 1-B HomeSide Tranche A Borrowing Base Addition Report
(Mortgage-Backed Securities)
Attachment 1-C HomeSide Tranche B Borrowing Base Addition Report (Servicing
Receivables)
Attachment 1-D Receivables Certificate
Attachment 2 Required Documents
Attachment 3 Required Review Procedures
Attachment 4-A HomeSide Tranche A Borrowing Base Certificate
Attachment 4-B HomeSide Tranche B Borrowing Base Certificate
Attachment 5-A Trust Receipt (During Negative Security Period)
Attachment 5-B Trust Receipt (During Positive Security Period)
Attachment 6 Trust Receipt Procedures
Attachment 7-A Shipping Request and Authorization
Attachment 7-B Transmittal Letter (During Negative Security Period)
Attachment 7-C Transmittal Letter (During Positive Security Period)
Attachment 7-D Bailee Letter (Agency Pool Formation During Negative Security
Period)
Attachment 7-E Bailee Letter (Agency Pool Formation During Positive Security
Period)
Attachment 7-F Bailee Letter (Early Buyout Advance Related Receivables During
Negative Security Period)
Attachment 7-G Bailee Letter (Early Buyout Related Advance Related Receivables
During Positive Security Period)
Attachment 8 Additional Required Documents
Attachment 9 Lien Release Acknowledgment
<PAGE> 42
42
ATTACHMENT 1-A
--------------
TO SECURITY AGREEMENT
---------------------
[On Letterhead of Grantor]
HOMESIDE TRANCHE A BORROWING BASE ADDITION REPORT
(Mortgage Loans)
No. ________
-------- --, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, between the Lenders party thereto
from time to time, the Balance Lenders named therein, The Chase Manhattan Bank,
as Administrative Agent (the "Administrative Agent"), The First National Bank of
Boston Association, as Collateral Agent (the "Collateral Agent"), Honolulu
Mortgage Company, Inc. and the undersigned, and the Amended and Restated
Security and Collateral Agency Agreement (as amended, supplemented or otherwise
modified from time to time, the "Security Agreement"), dated as of January 31,
1997, among the Administrative Agent, the undersigned and the Collateral Agent,
we hereby add the Mortgage Loans listed on the schedules attached hereto to the
HomeSide Tranche A Borrowing Base. The capitalized terms used herein but not
defined shall have the respective meanings as set forth in the Credit Agreement
or the Security Agreement.
With respect to each Mortgage Loan listed on the attached Schedule, we
hereby certify that either (i) each of the documents listed on ATTACHMENT 2 to
the Security Agreement that are required to be delivered for Mortgage Loans that
may be included in the HomeSide Tranche A Borrowing Base has been delivered to
you prior to (or is being delivered to you simultaneously with) the delivery of
this report or (ii) in the case of Eligible Wet Loans, each of the documents
listed on ATTACHMENT 2 to the Security Agreement will be delivered to you within
10 days after the date such Eligible Wet Loan is included in the HomeSide
Tranche A Borrowing Base. We also certify that each such Mortgage Loan has
closed or is scheduled to close by the close of business on the next Business
Day after the date hereof. If any such scheduled closing does not take place, we
agree to notify you by 12:00 noon (New York City time) on the Business Day after
such scheduled closing and agree that such Mortgage Loan shall be given no value
for purposes of determining the HomeSide Tranche A Borrowing Base.
<PAGE> 43
43
We hereby confirm that the Mortgage Loans listed on the attached schedules
are pledged to the Collateral Agent as Collateral under the Security Agreement
for the benefit of the Secured Parties as security for the Secured Obligations.
We acknowledge and agree that the inclusion of such Mortgage Loans in the
HomeSide Tranche A Borrowing Base constitutes "new value" as that term is used
in Section 9-304(4) of the New York Uniform Commercial Code.
HOMESIDE LENDING, INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 44
44
ATTACHMENT 1-B
--------------
TO SECURITY AGREEMENT
---------------------
[On Letterhead of Grantor]
HOMESIDE TRANCHE A BORROWING BASE ADDITION REPORT
(Mortgage-Backed Securities)
No. ________
-------- --, -----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, between the Lenders party thereto
from time to time, the Balance Lenders named therein, The Chase Manhattan Bank,
as Administrative Agent (the "Administrative Agent"), The First National Bank of
Boston Association, as Collateral Agent (the "Collateral Agent"), Honolulu
Mortgage Company, Inc. and the undersigned, and the Amended and Restated
Security and Collateral Agency Agreement (as amended, supplemented or otherwise
modified from time to time, the "Security Agreement"), dated as of January 31,
1997, among the Administrative Agent, the undersigned and the Collateral Agent,
we hereby confirm the issuance of the Mortgage-Backed Securities listed on the
schedule attached hereto and add such Mortgage-Backed Securities to the HomeSide
Tranche A Borrowing Base. The capitalized terms used herein but not defined
shall have the respective meanings as set forth in the Credit Agreement or the
Security Agreement.
With respect to each Mortgage-Backed Security listed on the attached
schedule, we hereby certify that (a) if such Mortgage-Backed Security is
certificated, it has been (or is simultaneously herewith being) deposited with
you or your designated agent, bailee or custodian, endorsed in blank for
transfer, and (b) if such Mortgage-Backed Security is a Book-Entry
Mortgage-Backed Security, such Mortgage-Backed Security is the subject of a
Perfected Assignment.
<PAGE> 45
45
We hereby confirm that the Mortgage-Backed Securities listed on the
attached schedule are pledged to you as Collateral under the Security Agreement
for the benefit of the Secured Parties as security for the Secured Obligations.
HOMESIDE LENDING, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 46
46
ATTACHMENT 1-C
--------------
TO SECURITY AGREEMENT
---------------------
[Grantor Letterhead]
HOMESIDE TRANCHE B BORROWING BASE ADDITION REPORT
-------------------------------------------------
No. ________
-------- --, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, among the Lenders party thereto from
time to time, the Balance Lenders named therein, The Chase Manhattan Bank as
Administrative Agent, The First National Bank of Boston as Collateral Agent,
Honolulu Mortgage Company, Inc. and the undersigned, and the Amended and
Restated Security and Collateral Agency Agreement (as amended, supplemented or
otherwise modified from time to time, the "Security Agreement"), dated as of
January 31, 1997, among the Administrative Agent, the undersigned and the
Collateral Agent, we hereby add the Servicing Receivables listed on the attached
schedules hereto to the HomeSide Tranche B Borrowing Base. The capitalized terms
used herein but not defined shall have the respective meanings as set forth in
the Credit Agreement or Security Agreement.
With respect to each Eligible Early Buyout Advance Receivable, Eligible
Foreclosure Advance Receivable, and/or Eligible Paid-In-Full Buyout Receivable
listed on the attached Schedule A, we hereby certify that each of the documents
listed on ATTACHMENT 2 of the Security Agreement that is required to be
delivered for such Servicing Receivables that may be included in the HomeSide
Tranche B Borrowing Base has been delivered to you prior to (or is being
delivered to you simultaneously with) the delivery of this report.
<PAGE> 47
47
We hereby confirm that the Servicing Receivables listed on the attached
Schedule A are pledged to the Collateral Agent as Collateral under the Security
Agreement for the benefit of the Secured Parties as security for the Secured
Obligations. We acknowledge and agree that the inclusion of such Servicing
Receivables in the HomeSide Tranche B Borrowing Base constitutes "new value" as
that term is used in Section 9-304(4) of the New York Uniform Commercial Code.
HOMESIDE LENDING, INC.
By:
------------------------------------
Name:
Title:
<PAGE> 48
48
Schedule A
to HomeSide Tranche B Borrowing Base Addition Report No. _____
1. ELIGIBLE EARLY BUYOUT ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
2. ELIGIBLE PAID-IN-FULL BUYOUT ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
3. ELIGIBLE FORECLOSURE ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
<PAGE> 49
49
ATTACHMENT 1-D
--------------
TO SECURITY AGREEMENT
---------------------
[Grantor Letterhead]
RECEIVABLES CERTIFICATE
No. ________
-------- --, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, among the Lenders party thereto from
time to time, the Balance Lenders named therein, The Chase Manhattan Bank as
Administrative Agent, The First National Bank of Boston as Collateral Agent,
Honolulu Mortgage Company, Inc. and the undersigned, and the Amended and
Restated Security and Collateral Agency Agreement (as amended, supplemented or
otherwise modified from time to time, the "Security Agreement"), dated as of
January 31, 1997, among the Administrative Agent, the undersigned and the
Collateral Agent, set forth below is a true and co rect report of the Eligible
P&I Advance Receivables, Eligible T&I Advance Receivables and Eligible
Default-Related Advance Receivables included in the HomeSide Tranche B Borrowing
Base on and as of the date hereof. The capitalized terms used herein but not
defined shall have the respective meanings as set forth in the Credit Agreement
or Security Agreement.
We hereby confirm that the Servicing Receivables listed herein are pledged
to the Collateral Agent as Collateral under the Security Agreement for the
benefit of the Secured Parties as security for the Secured Obligations. We
acknowledge and agree that the inclusion of such Servicing Receivables in the
HomeSide Tranche B Borrowing Base constitutes "new value" as that term is used
in Section 9-304(4) of the New York Uniform Commercial Code.
<PAGE> 50
50
1. ELIGIBLE P&I ADVANCE RECEIVABLES: $[________]
2. ELIGIBLE T&1 ADVANCE RECEIVABLES: $[________]
3. ELIGIBLE DEFAULT-RELATED
ADVANCE RECEIVABLES $[________]
TOTAL: $[________]
HOMESIDE LENDING, INC.
By:_______________________________
Name:__________________________
Title:_________________________
<PAGE> 51
51
ATTACHMENT 2
------------
TO SECURITY AGREEMENT
---------------------
REQUIRED DOCUMENTS
------------------
REQUIRED DOCUMENTS
------------------
FOR MORTGAGE LOANS
------------------
SUBMITTED FOR INCLUSION IN
--------------------------
THE HOMESIDE TRANCHE A BORROWING BASE
-------------------------------------
1. Original Mortgage Loan note executed in favor of the Grantor (endorsed or
assigned to the Grantor if purchased by the Grantor) and endorsed by the
Grantor in blank.
2. In the case of any Mortgage Loan that is included in the Tranche A
Borrowing Base for a period of 180 days or more, original recorded mortgage
or deed of trust securing the above Mortgage Loan. In lieu of a recorded
document, the Collateral Agent may accept a copy certified by the escrow
company, title insurance company or closing agent to be a true copy of the
original document.
3. In the case of any Mortgage Loan that is included in the Tranche A
Borrowing Base for a period of 180 days or more, original assignment of the
mortgage or deed of trust by the Grantor to the Collateral Agent with
assignee in blank, but otherwise in recordable form.
4. If the Grantor was not the original holder of the mortgage, the original or
a copy (certified by the Grantor and the closing attorney, correspondent,
records office or escrow or title company) of a proper assignment or
assignments of the mortgage or deed of trust from the original holder,
through any subsequent transferees, to the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed, an original of such note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original or photocopy of such power of attorney certified
by the Grantor.
<PAGE> 52
52
REQUIRED DOCUMENTS FOR
----------------------
MORTGAGE-BACKED SECURITIES
--------------------------
TO BE INCLUDED IN THE
---------------------
HOMESIDE TRANCHE A BORROWING BASE
---------------------------------
If such Mortgage-Backed Security is certificated, the certificate has been
deposited with the Collateral Agent or an agent, bailee and custodian of the
Collateral Agent, properly endorsed in blank for transfer or, if such
Mortgage-Backed Security is a Book-Entry Mortgage-Backed Security, evidence that
such Book-Entry Mortgage-Backed Security is the subject of a Perfected
Assignment. As applicable, all documentation required by the applicable Agency
for MORNET and Ginnie Net submissions.
<PAGE> 53
53
REQUIRED DOCUMENTS FOR ELIGIBLE EARLY BUYOUT
--------------------------------------------
ADVANCE RECEIVABLES, ELIGIBLE FORECLOSURE
-----------------------------------------
ADVANCE RECEIVABLES AND ELIGIBLE PAID IN FULL
---------------------------------------------
BUYOUT ADVANCE RECEIVABLES
--------------------------
A. Eligible Early Buyout Advance Receivables:
-----------------------------------------
1. Original Mortgage Loan note, endorsed or assigned to the Grantor, and
endorsed by the Grantor in blank.
2. Original recorded mortgage or deed of trust securing the above Mortgage
Loan.
3. Original assignment of the mortgage or deed of trust by the Grantor to the
Collateral Agent with assignee in blank, but otherwise in recordable form.
4. The original of a proper assignment or assignments of the mortgage or deed
of trust from the original holder, through any subsequent transferees, to
the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed for the purpose of converting the interest payable on such
Mortgage Loan from an adjustable rate to a fixed rate, an original of such
note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original or photocopy of such power of attorney certified
by the Grantor.
B. Eligible Foreclosure Advance Receivables:
----------------------------------------
1. A copy of a letter from an appropriate attorney or representative of a
title insurance company that the applicable foreclosure sale has been
completed and that the Grantor was the successful bidder in respect
thereof, or, in lieu thereof, such other evidence of the completion of such
foreclosure as the Collateral Agent may request.
2. As soon as available, a copy of, as applicable (a) Form HUD-27011 Part A
(Single Family application For Insurance Benefits), in the case of an FHA
Insured Mortgage Loan, (b) VA Form 26-1874 (Claim Under Loan Guarantee), in
the case of a VA-Insured Mortgage Loan, or (c) such claim form or other
documentation as is required by the applicable Approved Investor or
applicable private mortgage insurer. In each case, such documentation shall
be completed by the Grantor in compliance with the FNMA Guide, the FHLMC
Guide or other Approved Investor guidelines, as applicable.
C. Eligible Paid-in-Full Buyout Advance Receivables:
------------------------------------------------
1. Original Mortgage Loan note, endorsed or assigned to the Grantor, and
endorsed by the Grantor in blank.
<PAGE> 54
54
2. Original recorded mortgage or deed of trust securing the above Mortgage
Loan.
3. Original assignment of the mortgage or deed of trust by the Grantor to the
Collateral Agent with assignee in blank, but otherwise in recordable form.
4. The original of a proper assignment or assignments of the mortgage or deed
of trust from the original holder, through any subsequent transferees' to
the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed for the purpose of converting the interest payable on such
Mortgage Loan from an adjustable rate to a fixed rate, an original of such
note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original of such power of attorney certified by the
Grantor.
7. Copies of all correspondence to and from the mortgagor in respect of the
related Mortgage Loan evidencing such mortgagor's intention to liquidate
such Mortgage Loan through a payoff, and setting forth the anticipated
closing date thereof.
<PAGE> 55
55
ATTACHMENT 3
------------
TO SECURITY AGREEMENT
---------------------
REQUIRED REVIEW PROCEDURES
--------------------------
1. All documents submitted are consistent with the information provided in the
related schedule(s) attached to the HomeSide Tranche A Borrowing Base
Addition Report or HomeSide Tranche B Borrowing Base Addition Report, as
the case may be, as to mortgagor name, face amount, and loan number.
2. The note and mortgage/deed of trust each bears an original signature or
signatures which appear to be those of the person or persons named as the
maker and mortgagor/trustor, or, in the case of a certified copy of the
mortgage/deed of trust, such copy bears what appears to be a reproduction
of such signature or signatures.
3. Except for (a) the endorsement to the Grantor of the note in the event such
loan was purchased by the Grantor and (b) the endorsement in blank of the
note by the Grantor, neither the note, the mortgage/deed of trust, nor the
assignment(s) of the mortgage deed of trust contain any irregular writings
which appear on their face to affect the validity of any such endorsement
or to restrict the enforceability of the document on which they appear.
4. The note is endorsed in blank.
5. The assignment of the mortgage/deed of trust bears an original signature.
<PAGE> 56
56
ATTACHMENT 4-A
--------------
TO SECURITY AGREEMENT
---------------------
FORM OF HOMESIDE TRANCHE A BORROWING BASE CERTIFICATE
-----------------------------------------------------
(See Attached)
<PAGE> 57
57
ATTACHMENT 4-B
--------------
TO SECURITY AGREEMENT
---------------------
FORM OF HOMESIDE TRANCHE B BORROWING BASE CERTIFICATE
-----------------------------------------------------
(See Attached)
<PAGE> 58
ATTACHMENT 5-A
--------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT
-------------
(Release to Grantor During Negative Security Period)
Trust Receipt #_________
______________ ___, ____
The undersigned (the "Grantor"), acknowledges receipt from The First
National Bank of Boston, acting as secured party, agent, bailee and custodian
(in such capacity, the "Collateral Agent") for the exclusive benefit of the
Secured Parties (as that term is defined in the Amended and Restated Security
and Collateral Agency Agreement (as amended, supplemented or otherwise modified
from time to time, the "Security Agreement"), dated as of January 31, 1997,
between the Collateral Agent, the Grantor and The Chase Manhattan Bank, as
Administrative Agent, of the following described property (the "Trust
Property"), possession of which is herewith entrusted to the Grantor for the
purposes set forth below:
Mortgage Loan #_______ Note Amount: ________ Obligor: ________ Purpose: [Specify
nature of clerical or other documentation problem to be corrected.]
The Grantor hereby acknowledges that a security interest pursuant to the
New York Uniform Commercial Code in the Trust Property and in the proceeds of
the Trust Property has been granted to the Collateral Agent, for the benefit of
the Secured Parties, pursuant to the Security Agreement.
In consideration of the delivery of the Trust Property by the Collateral
Agent to the Grantor, the Grantor hereby agrees to hold the Trust Property in
trust for the Collateral Agent and the Secured Parties as provided under and in
accordance with all provisions of the Security Agreement and to return the Trust
Property to the Collateral Agent no later than the close of business on the
fourteenth (14th) calendar day following the date hereof or, if such day is not
a Business Day, on the immediately preceding Business Day.
The Grantor further agrees that at no time shall the value (determined in
accordance with Section 4.1 of the Credit Agreement) of all Mortgage Loans (as
defined in the Credit Agreement) included in the HomeSide Tranche A Borrowing
Base (as defined in the
<PAGE> 59
2
Credit Agreement) with respect to which notes or other
documentation has been released
under trust receipts exceed 1% of the HomeSide Tranche A Commitment Amount (as
defined in the Credit Agreement) then in effect.
HOMESIDE LENDING, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Delivery to Grantor Acknowledged
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
The undersigned, acknowledges that the above-mentioned Trust Property has been
returned to the Collateral Agent on _____________ __, ___.
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 60
3
ATTACHMENT 5-B
--------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT
-------------
(Release to Grantor During Negative Security Period)
Trust Receipt #_________
_______________ __, ____
The undersigned (the "Grantor"), acknowledges receipt from The First
National Bank of Boston, acting as agent, bailee and custodian (in such
capacity, the "Collateral Agent") for the exclusive benefit of the Secured
Parties (as that term is defined in the Amended and Restated Security and
Collateral Agency Agreement (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), dated as of May 31, 1996, between the
Collateral Agent, the Grantor and The Chase Manhattan Bank, as Administrative
Agent, of the following described property (the "Trust Property"), possession of
which is herewith entrusted to the Grantor for the purposes set forth below:
Mortgage Loan #______ Note Amount: ______ Obligor: ______ Purpose: [Specify
nature of clerical or other documentation problem to be corrected.]
In consideration of the delivery of the Trust Property by the Collateral
Agent to the Grantor, the Grantor hereby agrees to hold the Trust Property in
trust for the Collateral Agent and the Secured Parties as provided under and in
accordance with all provisions of the Security Agreement and to return the Trust
Property to the Collateral Agent no later than the close of business on the
fourteenth (14th) calendar day following the date hereof or, if such day is not
a Business Day, on the immediately preceding Business Day.
The Grantor further agrees that at no time shall the value (determined in
accordance with Section 4.1 of the Credit Agreement) of all Mortgage Loans (as
defined in the Credit Agreement) included in the HomeSide Tranche A Borrowing
Base (as defined in the
<PAGE> 61
4
Credit Agreement) with respect to which notes or other documentation has been
released under trust receipts exceed 1% of the HomeSide Tranche A Commitment
Amount (as defined in the Credit Agreement) then in effect.
HOMESIDE LENDING, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Delivery to Grantor Acknowledged
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
The undersigned, acknowledges that the above-mentioned Trust Property has been
returned to the Collateral Agent on _____________ __, ___.
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 62
5
ATTACHMENT 6
------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT PROCEDURES
------------------------
The Grantor and the Collateral Agent will adhere to the following procedures
with respect to trust receipts:
(a) Trust receipts will be prepared by the Grantor. They will be signed by
an Authorized Officer of the Grantor and acknowledged by the
Collateral Agent. Trust receipts will be sequentially numbered by the
Collateral Agent, which will maintain a log with a line for each trust
receipt indicating the sequential number, date issued, Mortgage Loan
number, Obligor, note amount and date Trust Property returned.
(b) The Collateral Agent will maintain all original trust receipts in a
drawer or other depository of a type that is suitable and customary
for such documents controlled solely by the Collateral Agent, with the
trust receipts filed in numerical order.
(c) The Collateral Agent will not release any documentation relating to
any Mortgage Loan included in the HomeSide Tranche A Borrowing Base
against a trust receipt if the value (as determined in accordance with
Section 4.1 of the Credit Agreement) of such Mortgage Loan, when added
to the value (as so determined) of all other such Mortgage Loans
included in the HomeSide Tranche A Borrowing Base then outside the
possession of the Collateral Agent under trust receipts, would exceed
1% of the HomeSide Tranche A Commitment Amount then in effect.
(d) Upon return of the Trust Property to the Collateral Agent, the trust
receipt will be surrendered to the Grantor for cancellation.
<PAGE> 63
6
ATTACHMENT 7-A
--------------
TO SECURITY AGREEMENT
---------------------
[Grantor Letterhead]
FORM OF SHIPPING REQUEST AND AUTHORIZATION
Date: ______________
[Collateral Agent]
[Address]
Attention: _________
This letter is to serve as authorization for you to endorse and ship the
following loans:
Loan Number Mortgagor Name Note Amount
- ----------- -------------- -----------
Commitment #_______________ is to be shipped to the following address:
NAME:
ADDRESS:
ATTENTION:
Please endorse the notes as follows:
Please ship the loan documents either by [____________] or by such other courier
service as we have designated to you as "approved." You are not responsible for
any delays in shipment or any other actions or inactions of the courier;
however, because the commitment expires on _______________, ____, we ask that
you deliver the loan documents to the courier no later than ________________,
____.
<PAGE> 64
7
Please have the courier bill us by using our account #. If you should have any
questions. or should feel the need for additional documentation. please do not
hesitate to call
HOMESIDE LENDING, INC.
By:
Name:
Title:
<PAGE> 65
8
ATTACHMENT 7-B
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
TRANSMITTAL LETTER
------------------
(During Negative Security Period)
[Approved Investor Name]
[Address]
Attn:
Re: Purchase of Mortgage Loans from
HomeSide Lending, Inc.
----------------------
Ladies and Gentlemen:
Attached please find those Mortgage Loans listed separately on the attached
schedule, which Mortgage Loans are owned by HomeSide Lending, Inc. (the
"Company") and are being delivered to you for purchase.
The Mortgage Loans constitute a portion of the Collateral under (and as the
term "Collateral" and capitalized terms not otherwise defined hereunder are
defined in) the Amended and Restated Security and Collateral Agency Agreement
(as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997, by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent (the "Collateral Agent"). Each of the Mortgage Loans is
subject to a security interest in favor of the Collateral Agent for the benefit
of the Secured Parties, which security interest shall be automatically released
upon our receipt of the full amount of the purchase price of such Mortgage Loans
(as set forth on the schedule attached hereto) by wire transfer to the following
account maintained with the Collateral Agent:
WIRE INSTRUCTIONS TO MORTGAGE LOAN SETTLEMENT ACCOUNT:
[To be provided by the Collateral Agent]
Pending your purchase of each Mortgage Loan and until payment therefor is
received, the aforesaid security interest therein will remain in full force and
effect, and you shall hold possession of such Collateral and the documentation
evidencing same in trust and as custodian, agent, and bailee for and on behalf
of the Secured Parties. In the event any Mortgage Loan is unacceptable for
purchase, return the rejected item directly to the undersigned at the
<PAGE> 66
9
address set forth below. In no event shall any Mortgage Loan be returned or
sales proceeds remitted to the Company. The Mortgage Loan must be so returned or
sales proceeds remitted in full no later than forty-five (45) days from the date
hereof. If you are unable to comply with the above instructions, please so
advise the undersigned immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER,
YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN, AGENT,
AND BAILEE FOR THE SECURED PARTIES ON THE TERMS DESCRIBED IN THIS LETTER. THE
UNDERSIGNED REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS
AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE
UNDERSIGNED AT THE FOLLOWING ADDRESS: [SPECIFY ADDRESS]; HOWEVER, YOUR FAILURE
TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
IRREVOCABLY ACKNOWLEDGED AND AGREED TO:
- -----------------------------------------
[Type name of Approved Investor]
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
<PAGE> 67
10
ATTACHMENT 7-C
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
TRANSMITTAL LETTER
------------------
(During Positive Security Period)
- ------------------------
[Approved Investor Name]
[Address]
Attn:
Re: Purchase of Mortgage Loans from
HomeSide Lending. Inc.
----------------------
Ladies and Gentlemen:
Attached please find those mortgage loans listed separately on the attached
schedule (the "Mortgage Loans"), which Mortgage Loans are owned by HomeSide
Lending, Inc. (the "Company") and are being delivered to you for purchase.
Please remit the full amount of the purchase price of such Mortgage Loans
(as set forth on the schedule attached hereto) by wire transfer to the following
account maintained with The Chase Manhattan Bank, as Administrative Agent:
WIRE INSTRUCTIONS TO MORTGAGE LOAN SETTLEMENT ACCOUNT:
[To be provided by the Collateral Agent]
In the event any Mortgage Loan is unacceptable for purchase, return the
rejected item directly to the undersigned at the address set forth below. In no
event shall any Mortgage Loan be returned or sales proceeds remitted to the
Company. The Mortgage Loan must be so returned or sales proceeds remitted in
full no later than forty-five (45)
<PAGE> 68
11
days from the date hereof. If you are unable to comply with the above
instructions. please so advise the undersigned immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
IRREVOCABLY ACKNOWLEDGED AND AGREED TO:
- ------------------------------------------
[Type name of Approved Investor]
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
<PAGE> 69
12
ATTACHMENT 7-D
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Agency Pool Formation During Negative Security Period)
[Certificating Custodian]
Re: HomeSide Lending, Inc.
Shipment of Mortgage Loans for Pool Formation
---------------------------------------------
Attached please find those Mortgage Loans listed separately on the attached
schedule, which are owned by HomeSide Lending, Inc. (the "Company") and are
being delivered to you, as custodian/trustee (the "Certificating Custodian"),
for certification in connection with the formation of a Mortgage Loan pool
supporting the issuance of a Mortgage-Backed Security described as follows:
___________________________________.
The Mortgage Loans constitute a portion of the Collateral under (and as the
term "Collateral" and capitalized terms not otherwise defined hereunder are
defined in) that certain Amended and Restated Security and Collateral Agency
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997 by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent. Each of the Mortgage Loans is subject to a security
interest in favor of the Collateral Agent for the benefit of the Secured Parties
(as such term is defined in the Agreement), which security interest shall be
automatically released upon the issuance of the Mortgage-Backed Security in
accordance with the terms of the prescribed GNMA, FNMA or FHLMC form enclosed
herewith. Upon issuance, the Mortgage-Backed Security shall be subject to a lien
in favor of the Collateral Agent for the benefit of the Secured Parties.
Pending issuance of the Mortgage-Backed Security, the aforesaid security
interest in each Mortgage Loan will remain in full force and effect, and you
shall hold possession thereof and the documentation evidencing such Mortgage
Loans in trust and as custodian, agent and bailee for and on behalf of the
Secured Parties. Please return to the undersigned within ten (10) days after
receiving such documentation, either (A) evidence of each Mortgage Loan's
initial certification for inclusion in a Mortgage Loan pool or (B) all
documentation relating to such Mortgage Loan if such Mortgage Loan is not
initially certified. In addition, please immediately return to the undersigned
all documentation relating thereto to the Collateral Agent if (x) such Mortgage
Loan is initially certified but it is subsequently determined that such Mortgage
Loan is not suitable for inclusion in a Mortgage Loan pool supporting a
Mortgage-Backed Securities prior to the issuance of such Mortgage-Backed
Security or (y) no Mortgage-Backed Security supported by a pool including
such Mortgage Loan has been issued within forty-five (45) days of
<PAGE> 70
13
your receipt of such documentation. In no event shall any Mortgage Loan be
returned or proceeds relating thereto be remitted to the Company. Please
segregate and properly identify all such documentation as collateral of the
Secured Parties that secures the Secured Obligations. If you are unable to
comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER,
YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN, AGENT
AND BAILEE FOR THE SECURED PARTIES ON THE TERMS DESCRIBED IN THIS LETTER. THE
COLLATERAL AGENT REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE
LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER
TO THE COLLATERAL AGENT AT THE FOLLOWING ADDRESS: [SPECIFY ADDRESS]; HOWEVER,
YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGMENT OF RECEIPT
[Certificating Custodian]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
<PAGE> 71
14
ATTACHMENT 7-E
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Agency Pool Formation During Positive Security Period)
- ------------------------
[Certificating Custodian]
Re: HomeSide Lending, Inc.
Shipment of Mortgage Loans for Pool Formation
---------------------------------------------
Attached please find those mortgage loans listed separately on the attached
schedule (the "Mortgage Loans"), which are owned by HomeSide Lending, Inc. (the
"Company") and are being delivered to you, as custodian/trustee (the
"Certificating Custodian"), for certification in connection with the formation
of a Mortgage Loan pool supporting the issuance of a mortgage-backed security
(the "Mortgage-Backed Security") described as follows:
_________________________.
Please return to the undersigned within ten (10) days after receiving such
documentation, either (A) evidence of each Mortgage Loan's initial certification
for inclusion in a Mortgage Loan pool or (B) all documentation relating to such
Mortgage Loan if such Mortgage Loan is not initially certified. In addition,
please immediately return to the undersigned all documentation relating thereto
to the Collateral Agent if (x) such Mortgage Loan is initially certified but it
is subsequently determined that such Mortgage Loan is not suitable for inclusion
in a Mortgage Loan pool supporting a Mortgage-Backed Security prior to the
issuance of such Mortgage-Backed Security or (y) no Mortgage-Backed Security
supported by a pool including such Mortgage Loan has been issued within
forty-five (45) days of your receipt of such documentation. In no event shall
any Mortgage Loan be returned or proceeds relating thereto be remitted to the
Company.
<PAGE> 72
15
If you are unable to comply with the above instructions please so advise
the undersigned immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGMENT OF RECEIPT
[Certificating Custodian]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
<PAGE> 73
16
ATTACHMENT 7-F
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Eligible Early Buyout Advance Receivables
During Negative Security Period)
[Name of Attorney or Title Company]
Re: HomeSide Lending, Inc.
Shipment of Mortgage Loans for Foreclosure Proceedings
------------------------------------------------------
Attached please find those Mortgage Loans listed separately on the attached
schedule, which are owned by HomeSide Lending, Inc. (the "Company") and are
being delivered to you, as agent and bailee (the "Bailee"), in connection with a
request by the Company to the Bailee to commence foreclosure proceedings.
The Mortgage Loans constitute a portion of the Collateral under (and as the
term "Collateral" and capitalized terms not otherwise defined hereunder are
defined in) that certain Amended and Restated Security and Collateral Agency
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997 by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent. Each of the Mortgage Loans is subject to a security
interest in favor of the Collateral Agent for the benefit of the Secured
Parties, which security interest shall be automatically released upon the
consummation of the foreclosure sale. Upon such sale, the proceeds thereof shall
be subject to a lien in favor of the Collateral Agent for the benefit of the
Secured Parties.
Pending receipt of such proceeds, the aforesaid security interest in each
Mortgage Loan will remain in full force and effect, and you shall hold
possession thereof and the documentation evidencing such Mortgage Loans in trust
and as custodian, agent and bailee for and on behalf of the Secured Parties.
Please return to the undersigned within 45 days after receiving such
documentation, either (A) evidence of the completion of the foreclosure
proceedings in respect of such Mortgage Loan or (B) all documentation relating
to such Mortgage Loan if such foreclosure proceedings have not been completed.
In no event shall any Mortgage Loan be returned or proceeds relating thereto be
remitted to the Company. Please segregate and properly identify all such
documentation as collateral of the Secured Parties that secures the Secured
Obligations. If you are unable to comply with the above instructions, please so
advise the undersigned immediately.
<PAGE> 74
17
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER,
YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN, AGENT
AND BAILEE FOR THE SECURED PARTIES ON THE TERMS DESCRIBED IN THIS LETTER. THE
COLLATERAL AGENT REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE
LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER
TO THE COLLATERAL AGENT AT THE FOLLOWING ADDRESS: [SPECIFY ADDRESS]; HOWEVER,
YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGMENT OF RECEIPT
[Attorney or Title Company]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
<PAGE> 75
18
ATTACHMENT 7-G
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Eligible Early Buyout Advance Receivables
During Positive Security Period)
[Name of Attorney or Title Company]
Re: HomeSide Lending, Inc.
Shipment of Mortgage Loans for Foreclosure Proceedings
------------------------------------------------------
Attached please find those mortgage loans listed separately on the attached
schedule (the "Mortgage Loans"), which are owned by HomeSide Lending, Inc. (the
"Company") and are being delivered to you, as agent and bailee (the "Bailee"),
in connection with a request by the Company to the Bailee to commence
foreclosure proceedings.
Please return to the undersigned within 45 days after receiving such
documentation, either (A) evidence of the completion of the foreclosure
proceedings in respect of such Mortgage Loan or (B) all documentation relating
to such Mortgage Loan if such foreclosure proceedings have not been completed.
In no event shall any Mortgage Loan be returned or proceeds relating thereto be
remitted to the Company. If you are unable to comply with the above
instructions, please so advise the undersigned immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 76
19
ACKNOWLEDGMENT OF RECEIPT
[Attorney or Title Company]
By:
------------------------------
Title:
---------------------------
Title:
---------------------------
Date:
<PAGE> 77
20
ATTACHMENT 8
------------
TO SECURITY
-----------
AGREEMENT
---------
ADDITIONAL REQUIRED DOCUMENTS
-----------------------------
1. The original mortgage or deed of trust securing the Mortgage Loan.
2. A copy of the title insurance policy (or a binding commitment of the
title company therefor) covering at least the face amount of the
Mortgage Loan note, with the original policy of title insurance
insuring the mortgage or deed of trust as a first or second lien, as
applicable, on the related Property written by a title company and
containing exceptions acceptable to an Agency or other Approved
Investor.
3. If in the Grantor's possession, evidence of the applicable FHA
commitment for insurance with respect to each FHA-insured Mortgage
Loan note, or VA commitment for guaranty with respect to each
VA-guaranteed Mortgage Loan note, and of the applicable commitment for
private Mortgage Loan insurance with respect to each conventional
Mortgage Loan note having a Loan-to-Value Ratio in excess of 80%.
4. A copy of the executed Take-Out Commitment for each Mortgage Loan, if
applicable.
5. Evidence of fire and extended coverage insurance in an amount not less
than the lower of the following: (a) the amount of the Mortgage Loan
and (b) 100% of the insurable value of the improvements. Such
insurance shall be written by a company satisfactory to each Agency or
other Approved Investor.
6. Evidence of Notice to Customer and Rescission required by the federal
Truth-in-Lending Law and Federal Reserve Regulation Z.
7. A copy of any required appraisal of the Property.
8. Other documentation (including information contained in electronic,
microfilm or other medium) in the possession of the Grantor as the
Administrative Agent or the Collateral Agent may reasonably deem
appropriate, including, without limitation, such documentation
necessary to fulfill requirements of Take-Out Commitments.
<PAGE> 78
21
ATTACHMENT 9
------------
TO SECURITY AGREEMENT
---------------------
CONFIRMATION OF RELEASE OF LIEN
The undersigned, HOMESIDE LENDING, INC. (the "Company"), pursuant to
Section 28 of that certain Amended and Restated Security and Collateral Agency
Agreement dated as of January 31, 1997 by and among the Company, THE FIRST
NATIONAL BANK OF BOSTON, as Collateral Agent, and THE CHASE MANHATTAN BANK, as
Administrative Agent (the "Security Agreement," and with capitalized terms not
otherwise defined herein used with the meanings given such terms in the Security
Agreement), hereby requests the Collateral Agent to execute and deliver to the
Company this Confirmation of Release of Lien. To induce the Collateral Agent to
so execute and deliver this Confirmation of Release of Lien, the Company hereby
represents and warrants to each of the Secured Parties that all conditions
precedent to the release of Lien set forth in Section 28(a) of the Security
Agreement have been and following the execution by the Collateral Agent of this
Confirmation of Release of Lien will be satisfied.
DATED: _________________, 199_.
HOMESIDE LENDING, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
RELEASE OF LIEN CONFIRMED
this __ day of _________, 199_:
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 1
EXHIBIT 10.33
FORM OF HONOMO SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AND COLLATERAL AGENCY AGREEMENT, dated
January 31, 1997, made by HONOLULU MORTGAGE COMPANY, INC., a Hawaiian
corporation (the "Grantor"), THE CHASE MANHATTAN BANK, in its capacity as
Administrative Agent under the Credit Agreement referred to below (in such
capacity, the "Administrative Agent ) and THE FIRST NATIONAL BANK OF BOSTON, as
Collateral Agent for the financial institutions party to the Credit Agreement
referred to below (in such capacity, the "Collateral Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Grantor has entered into an Amended and Restated Credit
Agreement, dated as of January 31, 1997, with HomeSide Lending, Inc., a Florida
corporation, the financial institutions from time to time party thereto, as
Lenders (the "Lenders"), the lenders from time to time designated therein as
Balance Lenders (the "Balance Lenders"), the Collateral Agent and the
Administrative Agent (said Agreement, as it may be amended, supplemented or
otherwise modified from time to time, being the "Credit Agreement"); and
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, the obligations of the Grantor under the Existing Credit
Agreement are secured pursuant to, INTER ALIA, the Security and Collateral
Agency Agreement, dated as of May 31, 1996 (the "EXISTING HONOMO SECURITY
AGREEMENT") among the parties to this Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans that
the Existing HonoMo Security Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing HonoMo Security Agreement
shall be amended and restated in its entirety as follows:
1. DEFINED TERMS.
Terms defined in the UCC (as hereinafter defined) are used herein as
therein defined. As used in this Agreement, capitalized terms defined in the
Credit Agreement and not otherwise defined herein have the meanings given in the
Credit Agreement, and the following terms have the meanings specified below
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):
<PAGE> 2
2
"ADDITIONAL REQUIRED DOCUMENTS" has the meaning set forth in Section
4(a) of this Agreement.
"AGENCY CUSTODIAL AGREEMENTS" shall mean, collectively, the FHLMC
Custodial Agreement, the FNMA Custodial Agreement and the GNMA Custodial
Agreement.
"APPROVED NON-AGENCY MORTGAGE LOAN" shall mean a Mortgage Loan in
respect of which the Grantor has Servicing Rights covered by a duly executed and
delivered Acknowledgment Agreement.
"CERTIFICATING CUSTODIAN" shall mean any Person acting as the
Grantor's "document custodian," "custodian" or "certificating custodian," as
such terms are used in the Agency Guides, for purposes of (a) certifying that
the documentation relating to Mortgage Loans received by such Person from the
Grantor (or the Collateral Agent) is complete and acceptable under the
applicable Agency Guide for purposes of including such Mortgage Loan in a pool
of Mortgage Loans in which Mortgage-Backed Securities will represent interests
and (b) holding such documentation following formation of such pools and
issuance of such Mortgage-Backed Securities. The Certificating Custodian shall
at all times be a party to the Agency Custodial Agreements.
"COLLATERAL" has the meaning set forth in Section 3 of this Agreement.
"FHLMC CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
supplemented or otherwise modified from time to time, between FHLMC, the Grantor
and any Person meeting the eligibility requirements set forth in the FHLMC Guide
to serve as a "custodian," as such term is used in the FHLMC Guide, pursuant to
which such Person is authorized to act as Certificating Custodian for the
Grantor.
"FNMA CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
supplemented or otherwise modified from time to time, between FNMA, the Grantor
and any Person meeting the eligibility requirements set forth in the FNMA Guide
to serve as a "document custodian," as such term is used in the FNMA Guide,
pursuant to which such Person is authorized to act as Certificating Custodian
for the Grantor.
"FUNDING ACCOUNT" shall mean account number [_________] maintained by
the Grantor with the Administrative Agent.
"GNMA CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
modified or supplemented from time to time, between GNMA, the Grantor and any
Person meeting the eligibility requirements set forth in the GNMA Guide to serve
as a "certificating custodian," as such term is used in the GNMA Guide, pursuant
to which such Person is authorized to act as Certificating Custodian.
"MBS CUSTODY ACCOUNT" has the meaning set forth in Section 6(h) of
this Agreement.
<PAGE> 3
3
"MORTGAGE LOAN SETTLEMENT ACCOUNT" has the meaning set forth in
Section 6(c) of this Agreement.
"PROCEEDS" shall mean "proceeds," as such term is defined in Section
9-306(1) of the UCC, and, in any event, includes, without limitation, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Grantor from time to time with respect to any of the Collateral, (b) any and
all payments (in any form whatsoever) made or due and payable to the Grantor
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of Governmental
Authority), and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"SECURED OBLIGATIONS" shall mean, collectively, the unpaid principal
of and interest on the Loans and any Notes and all other obligations and
liabilities of the Grantor and each of the other Loan Parties to the Secured
Parties (including, without limitation, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Grantor or any
other Loan Party, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit Agreement, the Loans,
any Notes, the HonoMo Guaranty, this Agreement, the other Loan Documents or any
other document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to any of the Secured Parties that are
required to be paid by the Grantor or any other Loan Party pursuant to the terms
of the Credit Agreement, this Agreement or any other Loan Document).
"SECURED PARTIES" shall mean, collectively, the Lenders, the Balance
Lenders, the Collateral Agent and the Administrative Agent.
"SECURITIES SETTLEMENT ACCOUNT" has the meaning set forth in Section
6(j) of this Agreement.
"SERVICING CONTRACT" shall mean each of the contracts or other
agreements to which the Grantor is a party pursuant to which the Grantor holds
Servicing Rights, in each case as amended, supplemented or otherwise modified
from time to time, including, without limitation, (a) all rights of the Grantor
to receive moneys due and to become due to it thereunder or in connection
therewith, other than any portion of principal and interest payable under the
related Mortgage Loans to the extent not attributable to servicing fees payable
to the Grantor under such Servicing Contracts, (b) all rights of the Grantor to
damages arising out of, or for, breach or default in respect thereof, and (c)
all rights of the Grantor to perform and to exercise all remedies thereunder.
<PAGE> 4
4
"SERVICING RECEIVABLES" shall mean the accounts, receivables and other
amounts owing to the Grantor for its own account in respect of Servicing Rights
or under a Servicing Contract, including, without limitation, all Eligible
Servicing Receivables.
"SERVICING RIGHTS" shall mean the rights of the Grantor to (a) service
Mortgage Loans for or on behalf of the owner or holder of such Mortgage Loans
(including investors in Mortgage-Backed Securities supported by Mortgage Loans)
pursuant to a direct agreement between the Grantor and an Agency, Approved
Investor or such owner or holder, together with the legal titles, mortgagor
files, escrows and records relating to this Agreement, such Mortgage Loans and
the right to receive servicing fee income and any other income arising from or
in connection with such Mortgage Loans, including late charges, termination fees
and charges and all other incidental fees and charges, and (b) subservice
Mortgage Loans for or on behalf of the legal title holder of the direct
servicing rights in respect of, or the owner or holder of, such Mortgage Loans,
pursuant to a subservicing agreement in form and substance satisfactory to the
Administrative Agent between the Grantor and the legal title holder of the
related direct servicing rights, together with the legal titles, mortgagor
files, escrows and records relating to such Mortgage Loans and the right to
receive servicing or subservicing fee income and any other income arising from
or in connection with such Mortgage Loans, including late charges, termination
fees and charges and all other incidental fees and charges.
"SERVICING SETTLEMENT ACCOUNT" has the meaning set forth in Section
6.1(m) of this Agreement.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Collateral Agent's and the other
Secured Parties' security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York,
the term "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
2. APPOINTMENT OF COLLATERAL AGENT.
Pursuant to the Credit Agreement the Collateral Agent has been
appointed to act as secured party, agent, bailee and custodian for the exclusive
benefit of the Secured Parties with respect to the Collateral. The Collateral
Agent hereby acknowledges that it has accepted such appointment and agrees to
maintain and hold all Collateral at any time delivered to it as secured party,
agent, bailee and custodian for the exclusive benefit of the Secured Parties.
The Collateral Agent acknowledges and agrees that it is acting and will act with
respect to the Collateral for the exclusive benefit of the Secured Parties and
is not, and shall not at any time in the future be, subject, with respect to the
Collateral, in any manner or to any extent, to the direction or control of the
Grantor or any of the other Loan Parties, except as expressly permitted
hereunder and under the other Loan Documents. The Collateral Agent agrees to act
in accordance with this Agreement and in accordance with any written
instructions from the Administrative Agent
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delivered pursuant to the Credit Agreement. Under no circumstances shall the
Collateral Agent deliver possession of Collateral to the Grantor or any other
Person (other than the Administrative Agent) or otherwise release any Collateral
from the Lien created hereby, except in accordance with the express terms of
this Agreement or otherwise upon the written instructions of the Administrative
Agent.
3. GRANT OF SECURITY INTEREST.
As collateral security for the full and prompt payment when due
(whether at stated maturity, by acceleration or otherwise) of, and the
performance of, all the Secured Obligations and to induce the Lenders to make
the Loans pursuant to the Credit Agreement, effective during any Negative
Security Event, the Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, on behalf and for the
ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, on behalf and for the ratable benefit of the Secured Parties, a security
interest in, all of the Grantor's right, title and interest in, to and under the
following, whether now owned or hereafter acquired, whether now in existence or
hereafter arising (all of which being herein collectively called the
"Collateral"):
(a) all Mortgage Loans submitted by the Grantor for inclusion in the
HonoMo Tranche A Borrowing Base and all Mortgage Loans purchased by the Grantor
with the proceeds of an Eligible Early Buyout Advance or an Eligible
Paid-in-Full Buyout Advance, including, without limitation, all notes,
mortgages, deeds to secure debt, trust deeds and security agreements, financing
statements and fixture filings related thereto, all rights to payment
thereunder, all rights in the Property securing payment of the indebtedness of
the Obligors thereunder or that are the subject of such Mortgage Loans, all
rights under documents related thereto, such as guaranties and insurance
policies (issued by an Agency or otherwise), including, without limitation,
mortgage and title insurance policies, fire and extended coverage insurance
policies (including the right to any return premiums) and FHA insurance and VA
guaranties and all rights, if any, in cash deposits consisting of impounds,
insurance premiums or other funds held on account thereof, all commitments and
other approvals issued by or on behalf of the FHA or the VA to insure or
guaranty any of the Mortgage Loans, and all Hedge Contracts relating to any of
the foregoing;
(b) all Mortgage-Backed Securities, all right to the payment of
moneys and non-cash distributions on account thereof and all new, substituted
and additional securities at any time issued with respect thereto, and all Hedge
Contracts related thereto;
(c) all Take-Out Commitments covering any part of the Collateral,
all rights to deliver Mortgage Loans and Mortgage-Backed Securities to investors
and other purchasers pursuant to such Take-Out Commitments, and all proceeds
resulting from the disposition of such Collateral pursuant thereto;
(d) all commitments and other agreements or approvals issued by or
on behalf of any Agency to issue, insure or guaranty any Mortgage-Backed
Security (other than any such
<PAGE> 6
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commitments or approvals the creation of a security interest in which would be
prohibited thereby or by applicable law);
(e) all (i) Servicing Rights, (ii) Servicing Contracts and (iii)
Hedge Contracts held by the Grantor related thereto, (iv) rights to receive
payments in connection with Servicing Contracts, Servicing Rights and Hedge
Contracts, whether on account of the performance of services, upon the
termination of Servicing Rights, Servicing Contracts, Hedge Contracts or
otherwise (including, without limitation, all Eligible Servicing Receivables
(and all deeds, contracts, agreements, instruments of title and other documents
received or receivable in respect thereof)), and (v) rights with respect to the
placement of escrow deposits associated with such Servicing Rights and Servicing
Contracts and all rights to the payment of money or provision of concessions or
services with respect thereto;
(f) the Mortgage Loan Settlement Account, the Securities Settlement
Account, the Servicing Settlement Account, the MBS Custody Account, the Funding
Account and any other custodial account of the Grantor held by or in the name of
the Collateral Agent or its bailee or designee (including, without limitation,
the Administrative Agent), and any and all funds securities, Cash Equivalents
and other items at any time held in such accounts and any and all rights of the
Grantor to insurance payments made in respect of such accounts;
(g) all files, documents, agreements, instruments, deeds, chattel
paper, inventory consisting of Mortgage Loans, Mortgage-Backed Securities or
Servicing Rights held for sale, insurance policies, personal property, contract
rights, accounts, general intangibles, records, surveys, certificates,
correspondence, appraisals, computer records, tapes, discs, cards, accounting
records and other books, records, information and data of the Grantor relating
to the Collateral (including all such items necessary or helpful in the
administration or servicing of the Collateral) of whatever kind or nature
whatsoever relating to the Mortgage Loans described in subsection (a) above or
the servicing of Mortgage Loans, the Mortgage-Backed Securities, the Take-Out
Commitments, the Servicing Rights or any other Collateral, and all other
documents or instruments delivered to the Collateral Agent in respect of the
Collateral, including, without limitation, the right to receive all insurance
proceeds and condemnation awards which may be payable in respect of any of the
Property; and
(h) to the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of, each of the foregoing.
4. DELIVERY OF COLLATERAL DOCUMENTATION: SUBMISSION OF COLLATERAL FOR
INCLUSION IN BORROWING BASES.
(a) DELIVERY OF MORTGAGE LOANS. From time to time, the Grantor shall
deliver or cause to be delivered to the Collateral Agent Eligible Mortgage Loans
to be included in the HonoMo Tranche A Borrowing Base as permitted pursuant to
the Credit Agreement, by delivery to the Collateral Agent of a HonoMo Tranche A
Borrowing Base Addition Report in the form of ATTACHMENT 1-A hereto, with all
blanks completed in conformity therewith, together with those
<PAGE> 7
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documents, instruments and agreements described on ATTACHMENT 2 hereto (the
"Required Documents"), except to the extent such Eligible Mortgage Loan
constitutes an Eligible Wet Loan, in which case the Required Documents shall be
delivered to the Collateral Agent within 10 days after the date such Eligible
Wet Loan is included in the HonoMo Tranche A Borrowing Base. Additionally, if
requested by the Administrative Agent, the Grantor shall use diligent efforts to
promptly deliver to the Collateral Agent the items described on ATTACHMENT 8
hereto (tine "Additional Required Documents"). Whenever the Grantor shall
deliver Eligible Mortgage Loans for inclusion in the HonoMo Tranche A Borrowing
Base, the Grantor shall be deemed to have represented and warranted that (i) has
delivered to the Collateral Agent (or, in the case of an Eligible Wet Loan, will
deliver to the Collateral Agent within 10 days after the date such Eligible Wet
Loan is included in the HonoMo Tranche A Borrowing Base) the Required Documents,
and (ii) it holds in its possession or is using diligent efforts to obtain
possession of the Additional Required Documents and to deliver the Additional
Required Documents to the Collateral Agent. The Grantor shall hold the
Additional Required Documents in its possession in trust for the benefit of the
Secured Parties until delivery thereof to the Collateral Agent as provided
herein.
(b) DELIVERY OF MORTGAGE-BACKED SECURITIES. From time to time, the
Grantor shall deliver or caused to be delivered to the Collateral Agent or its
bailee (including, without limitation, the Administrative Agent) Eligible
Mortgage-Backed Securities to be included in the HonoMo Tranche A Borrowing Base
and shall confirm the issuance of Mortgage-Backed Securities, by delivery to the
Collateral Agent of a HonoMo Tranche A Borrowing Base Addition Report, in the
form of ATTACHMENT 1-B hereto, with all blanks completed in conformity
therewith, together with the Required Documents for such Mortgage-Backed
Securities.
(c) DELIVERY OF SERVICING RECEIVABLES: DELIVERY OF RECEIVABLES
CERTIFICATE. From time to time, the Grantor may designate Eligible Early Buyout
Advance Receivables, Eligible Paid-ln-Full Buyout Advance Receivables and
Eligible Foreclosure Advance Receivables for inclusion in the HonoMo Tranche B
Borrowing Base by delivering, or causing to be delivered, to the Collateral
Agent a HonoMo Tranche B Borrowing Base Addition Report, in the form of
ATTACHMENT 1-C, with all blanks completed in conformity therewith, together with
all Required Documents in respect of such Eligible Servicing Receivables.
Simultaneously with its delivery to the Administrative Agent of a notice of
borrowing and/or notice of payment in respect of each Tranche B Advance Loan and
Tranche B Swing Line Loan as required under the Credit Agreement, the Grantor
shall deliver, or cause to be delivered, to the Collateral Agent a Receivables
Certificate in the form of Attachment l-D, with all blanks completed in
conformity therewith.
(d) DESIGNATION OF MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES. By
designating a Mortgage Loan or Mortgage-Backed Security for inclusion in the
HonoMo Tranche A Borrowing Base in accordance with this Section 4, the Grantor
shall be deemed to represent and warrant to each of the Secured Parties at and
as of the date of such addition that such Mortgage Loan or Mortgage-Backed
Security constitutes an Eligible Mortgage Loan or Eligible Mortgage-Backed
Security, as the case may be. If any such Mortgage Loan or Mortgage-Backed
Security fails to constitute an Eligible Mortgage Loan or Eligible
Mortgage-Backed Security, at any time, then the Grantor shall promptly so notify
the
<PAGE> 8
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Administrative Agent and the Collateral Agent by telefacsimile, and such
Mortgage Loan or Mortgage-Backed Security shall be deemed to have no value for
purposes of determining the HonoMo Tranche A Borrowing Base (whether or not the
Grantor has given such notice).
(e) DESIGNATION OF SERVICING RECEIVABLES. By designating Eligible
Servicing Receivables for inclusion in the HonoMo Tranche B Borrowing Base in
accordance with this Section 4, the Grantor shall be deemed to represent and
warrant to each of the Secured Parties at and as of the date of such inclusion
that such Eligible Servicing Receivables constitute Eligible Default-Related
Advance Receivables, Eligible Early Buyout Advance Receivables, Eligible
Foreclosure Advance Receivables, Eligible P&I Advance Receivables, Eligible
Paid-in-Full Buyout Advance Receivables or Eligible T&I Advance Receivables, as
the case may be. If any such servicing receivables fail to constitute Eligible
Default-Related Advance Receivables, Eligible Early Buyout Advance Receivables,
Eligible Foreclosure Advance Receivables, Eligible P&I Advance Receivables,
Eligible Paid-in-Full Buyout Advance Receivables or Eligible T&I Advance
Receivables, at any time, then the Grantor shall promptly so notify the
Administrative Agent and the Collateral Agent by telefacsimile, and such
Servicing Receivables shall be deemed to have no collateral value for purposes
of determining the HonoMo Tranche B Borrowing Base (whether or not the Grantor
has given such notice).
(f) COLLATERAL AGENT OFFICE. The Collateral Agent shall hold all
documentation relating to or constituting Collateral delivered to it from time
to time under this Agreement or any other Loan Document in accordance with the
provisions hereof and of the other Loan Documents in a fire resistant vault,
drawer or other suitable depository in an office maintained by the Collateral
Agent on premises owned or leased or subleased by it and occupied and controlled
solely by the Collateral Agent (the "Collateral Agent Office"), which
documentation shall (x) be conspicuously marked to show the Collateral Agent's
and the other Secured Parties' interests therein and (y) not be commingled with
any other assets or property of, or held by, the Collateral Agent. The
Collateral Agent Office may, in the discretion of the Collateral Agent, be
located on premises leased or subleased to the Collateral Agent by the Grantor
or an Affiliate of the Grantor, and may be adjacent to or in the same office
building as offices maintained and occupied by the Grantor or its Affiliates;
PROVIDED, HOWEVER, that (i) any such lease or sublease shall be in a form
customary in the location of such premises for arms'-length leases or subleases
of office premises between unrelated parties, and shall provide that the
Collateral Agent shall enjoy exclusive occupancy of such premises with no right
of access being granted to or retained by the Grantor or its other Affiliates
pursuant to such lease or sublease (other than any such right which is customary
for unaffiliated, third-party landlords to be granted in order to respond to
emergencies, or in order to conduct inspection of the premises upon reasonable
notice to the Collateral Agent and in the presence of the Collateral Agent),
(ii) there shall be no doorway or other physical access to the Collateral Agent
Office directly from premises occupied exclusively by the Grantor or any of its
other Affiliates, (iii) the public entrance to the Collateral Agent Office shall
be accessible from the street, a public lobby or other public space, and
entrance by the public into the Collateral Agent Office shall not require access
to space occupied exclusively by the Grantor or any of its other Affiliates,
(iv) the public entrance to the Collateral Agent Office shall be conspicuously
marked with the name of the Collateral Agent to identify such premises as being
premises of the Collateral Agent, and there
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shall be no reference in such markings to the Grantor or any of its other
Affiliates, (v) the Collateral Agent Office shall be staffed solely by
employees, officers or agents of the Collateral Agent and not of the Grantor or
any of its other Affiliates, which employees, officers and agents will be under
the sole supervision and direction of the Collateral Agent, and (vi) the Grantor
shall have access to the Collateral Agent Office, under the supervision of the
Collateral Agent, during normal business hours, which access shall be not
greater than that afforded to similar Persons in an arm's-length custodial
transaction.
5. COLLATERAL AGENT'S REVIEW OF COLLATERAL; BORROWING BASE CERTIFICATES.
(a) REVIEW OF COLLATERAL. Upon receipt of Required Documents
specified on ATTACHMENT 2 hereto for any Collateral, the Collateral Agent shall
review the same and verify that:
(i) all Required Documents appear regular on their face and
remain in the Collateral Agent's possession; and
(ii) the statements set forth on ATTACHMENT 3 hereto are
accurate and complete in all respects in respect of such Collateral.
Such verification of Collateral delivered during any period covered by a Basic
Status Report referred to in Section 5(d) hereof shall be set forth in such
report. If the Collateral Agent (x) notes any exception in the review described
in subsection (i) or (ii) above, (y) determines that any item of Collateral does
not satisfy the requirements of the Loan Documents for inclusion in the HonoMo
Tranche A Borrowing Base or the HonoMo Tranche B Borrowing Base, or (z)
questions, in its reasonable discretion, the genuineness, regularity, propriety,
or accuracy of any item of Collateral, the Collateral Agent shall note the same
as ineligible Collateral in its next HonoMo Tranche A Borrowing Base Certificate
or HonoMo Tranche B Borrowing Base Certificate, as the case may be, delivered to
the Administrative Agent.
(b) BORROWING BASE DETERMINATION; DETERMINATION ASSUMPTIONS. On each
Business Day, the Collateral Agent shall compute the value of the HonoMo Tranche
A Borrowing Base and the HonoMo Tranche B Borrowing Base (a "Borrowing Base
Determination"). At the close of the last Business Day of each week, the
Collateral Agent shall reconcile the Borrowing Base Determination against the
written determination thereof made by the Grantor (which determination shall be
in form and substance satisfactory to the Administrative Agent). In the event
either the Collateral Agent or Grantor determines that a discrepancy exists, the
Grantor shall cooperate with the Collateral Agent to reconcile such discrepancy
promptly but in any event not later than the following Business Day and prior to
any delivery of a HonoMo Tranche A Borrowing Base Certificate or HonoMo Tranche
B Borrowing Base Certificate to the Administrative Agent. Upon receipt of a copy
of any notice of borrowing and/or notice of payment submitted by the Grantor to
the Collateral Agent, deletion of any Collateral from the HonoMo Tranche A
Borrowing Base or the HonoMo Tranche B Borrowing Base or at such other times as
the Administrative Agent or the Grantor shall reasonably request, the Collateral
Agent shall promptly notify the Administrative Agent, or the Grantor, as the
case
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may be, of its Borrowing Base Determination by delivering a HonoMo Tranche A
Borrowing Base Certificate in the form of ATTACHMENT 4-A hereto and a HonoMo
Tranche B Borrowing Base Certificate in the form of ATTACHMENT 4-B hereto. In
making its Borrowing Base Determination, the Collateral Agent shall also verify
that (i) the aggregate outstanding Principal Amount of all Tranche A Loans and
Tranche A Swing Line Loans does not and, after giving effect to any borrowings
or payments contemplated in any such notice of borrowing or notice of payment or
any such deletion, will not, exceed the HonoMo Tranche A Borrowing Base, (ii)
the HonoMo Tranche A Borrowing Base complies in all respects to the limitations
and other terms set forth in Section 4.1 of the Credit Agreement, (iii) the
aggregate outstanding Principal Amount of all Tranche B Loans and Tranche B
Swing Loans does not and, after giving effect to any borrowings or payments
contemplated in any such notice of borrowing or notice of payment or any such
deletion, will not, exceed the HonoMo Tranche B Borrowing Base, and (iv) the
HonoMo Tranche B Borrowing Base complies in all respects to the limitations and
other terms set forth in Section 4.2 of the Credit Agreement.
(c) In making any Borrowing Base Determination or other calculation
involving a determination of the value of the HonoMo Tranche A Borrowing Base or
the HonoMo Tranche B Borrowing Base, the Collateral Agent shall be permitted to
rely, without independent investigation of the correctness thereof, on:
(i) the information supplied by the Grantor to the
Collateral Agent on the related HonoMo Tranche A Borrowing Base
Addition Report with respect to the unpaid principal balance, the
acquisition cost (minus discount points and fees associated with
yield), and the Applicable Take-Out Price relating to any Mortgage
Loan;
(ii) the information supplied by the Grantor to the
Collateral Agent on the related HonoMo Tranche A Borrowing Base
Addition Report with respect to the Applicable Take-Out Price relating
to any Mortgage-Backed Security;
(iii) the information supplied by the Grantor to the
Collateral Agent on the related HonoMo Tranche B Borrowing Base
Addition Report or Receivables Certificate with respect to the amount
of any Servicing Receivable;
(iv) the information supplied by the Grantor to the
Collateral Agent, whether written or in any other form acceptable to
the Collateral Agent, with respect to a determination as to whether
amounts received in the Mortgage Loan Settlement Account or Securities
Settlement Account represent the purchase price paid for a specific
Mortgage Loan or Mortgage-Backed Security and, consequently, whether
the value of such Mortgage Loan or of such Mortgage-Backed Security
should be removed from such calculation; and
(v) the information supplied by the Grantor to the
Collateral Agent, whether written or in any other form acceptable to
the Collateral Agent, with respect to a determination as to whether
amounts received in the Servicing Settlement Account represent
collections of Servicing Receivables or other Servicing Rights or the
purchase
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price paid for Servicing Receivables or other Servicing Rights sold and,
consequently, whether the value of such Servicing Receivables or Servicing
Rights should be removed from such calculation.
(d) REPORTS. The Collateral Agent shall deliver to: (i) the
Administrative Agent and the Grantor, (A) within three Business Days after the
end of each month, a basic status report in form and substance acceptable to the
Administrative Agent with respect to the status of the HonoMo Tranche A
Borrowing Base and the HonoMo Tranche B Borrowing Base ("Basic Status Report")
as of the end of the preceding month and (B) within one Business Day after the
end of each week, a report in form and substance acceptable to the
Administrative Agent with respect to exceptions noted by the Collateral Agent in
accordance with Section 5(a) hereof outstanding as of the end of the preceding
week (an "Outstanding Exceptions Report"), and (ii) to the Administrative Agent
and the Lenders, from time to time, such other reports and information as the
Administrative Agent or the Required Lenders may from time to time reasonably
request. In preparing any such reports, the Collateral Agent shall be entitled
to rely, without independent investigation (other than the review steps
described on ATTACHMENT 3 hereto), on information supplied to the Collateral
Agent by the Grantor.
6. RELEASE OF COLLATERAL; POOL FORMATION; PLEDGING OF MORTGAGE-BACKED
SECURITIES AND TRANSFER OF FUNDS FROM SETTLEMENT ACCOUNTS.
(a) RELEASE OF MORTGAGE LOANS FOR CORRECTION UNDER TRUST RECEIPT.
Unless and until notified by the Administrative Agent (by telephone,
telefacsimile or otherwise) that a Default or an Event of Default has occurred
and is continuing, the Collateral Agent is hereby authorized upon written
request of the Grantor to release from time to time to the Grantor,
documentation constituting or relating to Mortgage Loans pledged hereunder
against a trust receipt executed by the grantor in the form of ATTACHMENT 5-A
hereto (during a Negative Security Period) or ATTACHMENT 5-B hereto (during a
Positive Security Period), with all blanks completed in conformity therewith. In
any such release, the Grantor and the Collateral Agent will comply with the
relevant trust receipt procedures specified on ATTACHMENT 6 hereto. The Grantor
hereby represents and warrants that (i) any request by the Grantor for release
of documentation constituting or relating to Mortgage Loans shall be solely for
the purposes of correcting clerical or other nonsubstantial documentation
problems in preparation for returning such documentation to the Collateral Agent
for ultimate sale or exchange, and (ii) the Grantor shall request such release
in compliance with all of the terms and conditions of such release herein set
forth. The Grantor agrees to hold any documentation so released in trust for the
Collateral Agent and the other Secured Parties, and agrees to return such
documentation to the Collateral Agent no later than the close of business on the
fourteenth (14th) day following the date of such release or, if such day is not
a Business Day, on the immediately preceding Business Day.
(b) RELEASE OF MORTGAGE LOANS FOR WHOLE-LOAN PURCHASES. Unless and
until otherwise notified by the Administrative Agent (by telephone,
telefacsimile or otherwise) that a Default or an Event of Default has occurred
and is continuing, upon delivery from time to time by the Grantor to the
Collateral Agent of a shipping request and authorization to ship in the form
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of ATTACHMENT 7-A hereto, with all blanks completed in conformity therewith, the
Collateral Agent shall release documentation constituting or relating to
Mortgage Loans pledged hereunder to Approved Investors for purchase as whole,
non-pooled Mortgage Loans. Any transmittal of documentation for Mortgage Loans
in the possession of the Collateral Agent in connection with the sale thereof to
an Approved Investor (other than an Agency) shall be under cover of a
transmittal letter substantially in the form of ATTACHMENT 7-B hereto (during a
Negative Security Period) or ATTACHMENT 7-C hereto (during a Positive Security
Period), with all blanks completed in conformity therewith and duly executed by
the Collateral Agent. Any transmittal of documentation for Mortgage Loans in
connection with the sale thereof to either FHLMC or FNMA for inclusion as whole,
non-pooled Mortgage Loans in their respective loan portfolios shall be (x) under
cover of a transmittal letter substantially in the form of ATTACHMENT 7-B hereto
(during a Negative Security Period) or ATTACHMENT 7-C hereto (during a Positive
Security Period), with all blanks completed in conformity therewith and duly
executed by the Collateral Agent, (y) under cover of such other forms in lieu of
the foregoing that FHLMC or FNMA require pursuant to their respective Agency
Guides, duly executed by the Collateral Agent and, if necessary, the Grantor, or
(z) with appropriate entries into any applicable electronic telecommunications
network utilized by FHLMC or FNMA. In each case of transmittal of documentation
constituting or relating to Mortgage Loans pursuant to this subsection (b), the
Collateral Agent and the Grantor shall instruct the recipient thereof that such
documentation shall be resumed to the Collateral Agent if such Mortgage Loans
are not purchased and the proceeds thereof paid in accordance with subsection
(c) below within forty-five (45) days after such recipient's receipt of such
documentation or, if such forty-fifth day is not a Business Day, on the
immediately preceding Business Day. With respect to transmittal of documentation
constituting or relating to Mortgage Loans, before the Collateral Agent delivers
documentation pursuant to this subsection (b), the Grantor shall have delivered
to the Collateral Agent (or any other applicable Person) such forms, duly
executed by the Grantor, or written notification that the Grantor has made such
appropriate entries into any applicable electronic telecommunications network
utilized by FHLMC or FNMA, as required under the applicable Agency Guides or
Take-Out Commitments to effect delivery to FHLMC, FNMA or any other Approved
Investor of such Mortgage Loans and payment therefor in accordance with the
instructions of the Collateral Agent.
(c) MORTGAGE LOAN SETTLEMENT ACCOUNT. With respect to any purchases
of Mortgage Loans described in subsection (b) hereof, the Collateral Agent and
the Grantor shall instruct each Approved Investor purchasing Mortgage Loans that
all amounts payable on account of the sale of such Mortgage Loans are to be paid
directly by such party to a "no access" account of the Grantor (account no.
304-207276) maintained in the Administrative Agent's name alone at the office of
the Administrative Agent for the benefit of the Grantor (the "Mortgage Loan
Settlement Account"). For all such purchases of Mortgage Loans, the Grantor
shall, upon demand of the Collateral Agent or the Administrative Agent, provide
the Collateral Agent and the Administrative Agent with evidence that the Grantor
has directed such Approved Investors to pay such amounts directly into the
Mortgage Loan Settlement Account. Upon the Administrative Agent's receipt of the
full amount of the purchase price for each Mortgage Loan from an Approved
Investor in accordance with this subsection (c), the security interest created
by this Agreement on the affected Mortgage Loan (but not the Proceeds thereof)
shall be
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automatically released. Unless a Default or an Event of Default shall be
continuing, amounts held from time to time in the Mortgage Loan Settlement
Account may, upon the instructions of the Grantor, be invested in Cash
Equivalents.
(d) SECURITY INTEREST IN MORTGAGE LOAN SETTLEMENT ACCOUNT. Pursuant
to Section 3 hereof, the Grantor has granted to the Collateral Agent, for the
benefit of the Secured Parties, effective during any Negative Security Period, a
security interest in the Mortgage Loan Settlement Account and in any and all
funds, securities, Cash Equivalents and other items at any time held therein as
collateral security for the Secured Obligations. This subsection (d) shall
constitute irrevocable notice to the Collateral Agent that the Mortgage Loan
Settlement Account is a "no access" account to the Grantor. The Collateral Agent
shall hold its security interest in the Mortgage Loan Settlement Account and all
funds at any time held therein for the benefit of the Secured Parties and with
all rights of a secured party under the UCC and other applicable New York law.
In no circumstances shall the Grantor have access to, control of or dominion
over the Mortgage Loan Settlement Account. The Collateral Agent hereby appoints
the Administrative Agent to hold the Mortgage Loan Settlement Account pursuant
to the terms hereof for the benefit of the Secured Parties with all rights of a
secured party under the UCC and other applicable New York law, and the
Administrative Agent hereby accepts such appointment.
(e) RELEASE OF MORTGAGE LOANS FOR POOLING. Unless and until
otherwise notified by the Administrative Agent (by telephone, telefacsimile or
otherwise) that a Default or an Event of Default has occurred and is continuing,
upon delivery from time to time by the Grantor to the Collateral Agent of a
shipping request and authorization to ship in the form of ATTACHMENT 7-A hereto,
with all blanks completed in conformity therewith, the Collateral Agent shall
release documentation constituting or relating to Mortgage Loans in connection
with the formation of a pool of Mortgage Loans supporting Mortgage-Backed
Securities. Any transmittal of documentation for such Mortgage Loans in the
possession of the Collateral Agent shall be to the Certificating Custodian and
shall be (x) under cover of a transmittal letter substantially in the form of
ATTACHMENT 7-D hereto (during a Negative Security Period) or ATTACHMENT 7-E
hereto (during a Positive Security Period), as applicable, with all blanks
completed in conformity therewith and duly executed by the Collateral Agent; (y)
under cover of such other forms in lieu of the foregoing that FHLMC, FNMA or
GNMA require pursuant to their respective Agency Guides, duly executed by the
Collateral Agent and, if necessary, the Grantor; or (z) with entries into any
applicable electronic telecommunications network utilized by FHLMC, FNMA or
GNMA. The Collateral Agent and the Grantor shall, with respect to each Mortgage
Loan for which documentation is transmitted pursuant to this subsection (e),
instruct the Certificating Custodian to (i) return to the Collateral Agent,
within ten (10) days after receiving such documentation, either (A) evidence of
such Mortgage Loan's initial certification for inclusion in a Mortgage Loan pool
if the Certificating Custodian so certifies such Mortgage Loan or (B) all
documentation relating to such Mortgage Loan if the Certificating Custodian does
not so certify such Mortgage Loan, (ii) immediately return all documentation
relating thereto to the Collateral Agent if (A) the Certificating Custodian
initially certifies such Mortgage Loan but subsequently determines that such
Mortgage Loan is not suitable for inclusion in a Mortgage Loan pool supporting a
Mortgage-Backed Security prior to the issuance of such Mortgage-Backed Security
or (B) no Mortgage-Backed Security supported by a pool including such Mortgage
Loan has
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been issued within forty-five (45) days after the Certificating Custodian's
receipt of such documentation, and (iii) segregate and, during each Negative
Security Period, properly identify all such documentation as collateral of the
Secured Parties that secures the Secured Obligations. Before the Collateral
Agent delivers documentation pursuant to this subsection (e), the Grantor shall
have delivered to the Collateral Agent or any other applicable Person such
forms, duly executed by the Grantor, or written notification that the Grantor
has made the appropriate entries into any applicable electronic
telecommunications network utilized by FHLMC, FNMA or GNMA, as required under
the applicable Agency Guides or Take-Out Commitments to effect delivery to the
Certificating Custodian of such Mortgage Loans and payment therefor in
accordance with the instructions of the Collateral Agent. The Grantor further
agrees to (x) enter into such arrangements and agreements with the Collateral
Agent, the Certificating Custodian and each of the Agencies as may be necessary
to facilitate the issuance of Mortgage-Backed Securities under the respective
Mortgage-Backed Securities programs of such Agencies and (y) conform its
procedures relating to the formation of such pools and the delivery of such
forms and certifications required by FHLMC, FNMA and GNMA, as the case may be,
to the established procedures of the Collateral Agent with respect thereto.
(f) RETURN OF MORTGAGE LOANS BY CERTIFICATING CUSTODIAN. If the
Certificating Custodian returns to the Collateral Agent documentation relating
to any Mortgage Loan following the Certificating Custodian's determination that
such Mortgage Loan is not suitable for pooling, the Collateral Agent shall hold
such documentation in accordance with the terms hereof, and, following the
Grantor's request that such Mortgage Loan be included in the HonoMo Tranche A
Borrowing Base for purposes of determining the value thereof pursuant to a
HonoMo Tranche A Borrowing Base Addition Report, shall also include such
Mortgage Loan in the HonoMo Tranche A Borrowing Base if (but only if) such
Mortgage Loan constitutes an Eligible Mortgage Loan.
(g) PTC AND SEG ACCOUNTS. The Collateral Agent shall (i) maintain at
all times in its name with the Participants Trust Company (the "PTC"), or with a
participant of the PTC if the Collateral Agent is not a participant of the PTC,
a "Sea Account" (or an account that shall not at any time be subject to a
security interest in favor of the PTC or anyone benefiting through the PTC),
into which each GNMA Mortgage-Backed Security shall be initially deposited or
credited when issued, and (ii) maintain at all times in its name with a bank
that is a member of the Federal Reserve Bank of New York a securities account
into which each FHLMC Mortgage-Backed Security or FNMA Mortgage-Backed Security
shall be entered when issued. In all circumstances, possession, maintenance and
transfer of Mortgage-Backed Securities in, to and from such accounts shall be
under the sole and exclusive control of the Collateral Agent, and the Grantor
shall have no access to, control of or dominion over such accounts.
(h) MBS CUSTODY ACCOUNT. The Grantor has established and shall at
all times maintain a pledged securities custodial account (account no. [______])
with the Administrative Agent (the "MBS Custody Account") for the purpose of
holding all Mortgage-Backed Securities. The MBS Custody Account shall be a "no
access" account to the Grantor maintained in the Collateral Agent's name for the
benefit of the Grantor. The Collateral Agent shall have exclusive control over
the disposition of all Mortgage-Backed Securities held in the MBS Custody
<PAGE> 15
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Account, and the Grantor shall have no right to transfer, trade or otherwise
direct the disposition of such Mortgage-Backed Securities. Pursuant to Section 3
hereof, the Grantor has granted to the Collateral Agent, for the benefit of the
Secured Parties, a security interest in the MBS Custody Account and in any and
all Mortgage-Backed Securities at any time held therein or credited thereto as
collateral security for the Secured Obligations. This subsection (h) shall
constitute irrevocable notice to the Collateral Agent that the MBS Custody
Account is a "no access" account to the Grantor. The Collateral Agent shall hold
its security interest in the MBS Custody Account and all Mortgage-Backed
Securities at any time held therein or thereto, for the benefit of the Secured
Parties, with all rights of a secured party under the UCC and other applicable
New York or federal law. In no circumstances shall the Grantor have access to,
control of or dominion over the MBS Custody Account.
(i) ISSUANCE OF MORTGAGE-BACKED SECURITIES. The Grantor shall
promptly conform to the Collateral Agent the issuance of each Mortgage-Backed
Security supported by a pool of Mortgage Loans constituting Collateral prior to
such issuance. Upon the issuance of Mortgage-Backed Securities, (A) the security
interest of the Collateral Agent, for the benefit of the Secured Parties, in the
pooled Mortgage Loans supporting such Mortgage-Backed Securities (but not in the
Proceeds thereof) shall cease, (B) for purposes of determining the HonoMo
Tranche A Borrowing Base, such Mortgage Loans shall be removed from the HonoMo
Tranche A Borrowing Base and, upon receipt by the Collateral Agent of a HonoMo
Tranche A Borrowing Base Addition Report in respect thereof, such
Mortgage-Backed Securities shall be deemed submitted for inclusion in the HonoMo
Tranche A Borrowing Base and (C) such Mortgage-Backed Securities and the
Proceeds thereof shall be subject to a security interest in favor of the
Collateral Agent for the benefit of the Secured Parties during any Negative
Security Period. The Collateral Agent and the Grantor shall comply with all
rules and regulations, if any, of the applicable Agency, the PTC, the applicable
Federal Reserve Bank and any applicable Governmental Authority for recognizing,
creating and perfecting security interests in such Mortgage-Backed Securities
and shall, to the extent consistent with such rules and regulations, comply with
the procedures set forth on ATTACHMENT 3 hereto. For Book-Entry Mortgage-Backed
Securities, the Collateral Agent and the Grantor shall cause the applicable
security to be issued in the name of or pledged or transferred to the Collateral
Agent (or a financial intermediary for the Collateral Agent), as bailee for the
Secured Parties, as collateral security for the Secured Obligations, and the
Grantor shall identify the Collateral Agent (or its financial intermediary), for
the benefit of the Secured Parties, as the Person to whom such Mortgage-Backed
Security shall be issued on the forms required by FHLMC, FNMA or GNMA under
their respective Agency Guides or in entries into any electronic
telecommunications network utilized by FHLMC, FNMA or GNMA. The Collateral Agent
shall make such entries with respect to such Mortgage-Backed Securities on its
books and records as necessary to reflect the transfer and pledge of such
securities for the benefit of the Secured Parties. The Collateral Agent shall
also ensure that each of the Administrative Agent, the Grantor, itself and any
other applicable Person receive such confirmation, if any, of the pledge as is
necessary to effect a Perfected Assignment with respect to the pledged security.
All such Mortgage-Backed Securities shall be credited "free" when issued to the
Collateral Agent or a financial intermediary of the Collateral Agent. For
certificated Mortgage-Backed Securities, the Collateral Agent or its bailee
(including, without limitation, the Administrative Agent) shall have received
and be holding in its possession for the
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benefit of the Secured Parties the original Mortgage-Backed Security
certificate, which shall be registered in the name of the Collateral Agent or
accompanied by a duly executed (in blank), undated, transfer power or other
instrument of assignment sufficient to transfer the security to the Collateral
Agent for the benefit of the Secured Parties. Immediately upon demand of the
Collateral Agent, the Grantor shall provide the Collateral Agent and the
Administrative Agent with evidence that the Grantor has taken all steps and
performed all actions necessary to ensure that the Collateral Agent holds, for
the benefit of the Secured Parties, a valid, perfected and first priority
security interest in all Mortgage-Backed Securities.
(j) SECURITIES SETTLEMENT ACCOUNT. Unless the Administrative Agent
has notified the Collateral Agent that a Default or an Event of Default has
occurred and is continuing or until otherwise notified by the Administrative
Agent (by telephone, telefacsimile or otherwise), from time to time the
Collateral Agent shall arrange for the timely transfer of any Mortgage-Backed
Securities to an Approved Investor (including any of the Agencies), or the
nominee thereof, in accordance with the terms of any applicable TakeOut
Commitment. The Grantor agrees to provide the Collateral Agent with written or
electronic designation of such Approved Investors, together with the appropriate
instructions for crediting such Approved Investors' respective accounts. All
deliveries of Mortgage-Backed Securities to such Approved Investors shall be
made only "against payment" by such Approved Investors to the Securities
Settlement Account (as hereinafter defined), in immediately available funds, of
the full purchase price of such Mortgage-Backed Securities, in accordance with
the terms of such Take-Out Commitments. The Grantor shall provide the Collateral
Agent and the Administrative Agent with evidence that it has directed all
Approved Investors or other purchasers to pay the proceeds of Mortgage-Backed
Securities purchases directly to a "no access" account to the Grantor (account
no. 304-207284) maintained in the Administrative Agent's name alone for the
benefit of the Grantor (the "Securities Settlement Account"). The Collateral
Agent shall hold its security interest in the Securities Settlement Account and
all funds at any time held therein for the benefit of the Secured Parties and
with all rights of a secured party under the UCC and other applicable New York
law. In no circumstances shall the Grantor have access to, control of or
dominion over the Securities Settlement Account. The Collateral Agent hereby
appoints the Administrative Agent to hold the Securities Settlement Account
pursuant to the terms hereof for the benefit of the Secured Parties with all
rights of a secured party under the UCC and other applicable New York law, and
the Administrative Agent hereby accepts such appointment. Upon the Collateral
Agent's full receipt of the purchase price of any Mortgage-Backed Security in
accordance with this subsection (j) the security interest created by this
Agreement in the affected Mortgage-Backed Security (but not in the Proceeds
thereof) shall be automatically released. Unless a Default or an Event of
Default shall be continuing, amounts held from time to time in the Securities
Settlement Account may, upon the instructions of the Grantor, be invested in
Cash Equivalents.
(k) RELEASE OF CERTAIN MORTGAGE LOANS RELATING TO ELIGIBLE EARLY
BUYOUT ADVANCE RECEIVABLES IN CONNECTION WITH FORECLOSURE PROCEEDINGS. Unless
and until otherwise notified by the Administrative Agent (by telephone,
telefacsimile or otherwise) that a Default or an Event of Default has occurred
and is continuing, upon delivery from time to time by the Grantor to the
Collateral Agent of a shipping request and authorization to ship in the form of
<PAGE> 17
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ATTACHMENT 7-A hereto, with all blanks completed in conformity therewith, the
Collateral Agent shall release documentation constituting or relating to
Mortgage Loans obtained by the Grantor in connection with an Eligible Early
Buyout Advance Receivable and pledged hereunder to the attorney or title
insurance company that has been requested by the Grantor to commence foreclosure
proceedings in respect of such Mortgage Loans. Any transmittal of documentation
for Mortgage Loans in the possession of the Collateral Agent to such attorney or
title company in connection with such foreclosure proceedings shall be under
cover of a transmittal letter substantially in the form of ATTACHMENT 7-F hereto
(during a Negative Security Period) or ATTACHMENT 7-G hereto (during a Positive
Security Period), with all blanks completed in conformity therewith and duly
executed by the Collateral Agent. In each case of transmittal of documentation
constituting or relating to Mortgage Loans pursuant to this subsection (l), the
Collateral Agent shall instruct the recipient thereof that it shall return to
the Collateral Agent, within 45 days of receipt of such documentation, either
(i) evidence of the completion of the foreclosure proceedings in respect of such
Mortgage Loans or (ii) all documentation relating to such Mortgage Loans if such
foreclosure proceedings have not been completed.
(l) NO COLLATERAL RELEASE DURING DEFAULT OR EVENT OF DEFAULT. If the
Collateral Agent has been notified in writing by the Administrative Agent that a
Default or an Event of Default has occurred and is continuing, the Collateral
Agent shall not, and shall incur no liability to the Grantor or any other Person
for refusing to, release any item of Collateral to the Grantor or any other
Person without the express prior written consent and at the direction of the
Administrative Agent.
(M) SERVICING SETTLEMENT ACCOUNT. With respect to any amounts owed
to the Grantor in respect of Servicing Receivables or other Servicing Rights
(including, without limitation, all Eligible Default-Related Advance
Receivables, Eligible Early Buyout Advance Receivables, Eligible Foreclosure
Advance Receivables, Eligible P&I Advance Receivables, Eligible Paid-in-Full
Buyout Advance Receivables, Eligible T&l Advance Receivables, proceeds of the
sale of Servicing Rights and all termination and other fees payable in respect
of Servicing Rights) other than from a mortgagor in respect of the applicable
Mortgage Loan, if requested by the Administrative Agent, the Collateral Agent
and the Grantor shall instruct any obligor in respect of such Servicing
Receivable or other Servicing Rights that all amounts payable on account of such
Servicing Receivable or other Servicing Rights are to be paid directly by such
party to a "no access" account of the Grantor (account no. 304-207292)
maintained in the Administrative Agent's name alone at the office of the
Administrative Agent for the benefit of the Grantor (the "Servicing Settlement
Account"). The Grantor shall, upon demand of the Collateral Agent or the
Administrative Agent, provide the Collateral Agent and the Administrative Agent
with evidence that the Grantor has directed such obligors to pay such amounts
directly into the Servicing Settlement Account. Unless a Default or an Event of
Default shall be continuing, amounts held from time to time in the Servicing
Settlement Account may, upon the instructions of the Grantor, be invested in
Cash Equivalents. With respect to any amounts owed to the Grantor in respect of
Servicing Receivables or other Servicing Rights as to which the Administrative
has not requested that such instructions be given to such obligors or which are
received by the Grantor contrary to such instructions, the Grantor shall, on the
Business Day of its receipt thereof, deposit any and all such amounts in a
blocked account or
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other "no access" account in the name of the Administrative Agent, which account
shall be designated by, and subject to terms and conditions satisfactory to, the
Collateral Agent and the Administrative Agent. All funds so deposited by the
Grantor in such blocked or other account shall be promptly transferred to the
Servicing Settlement Account.
(n) SECURITY INTEREST IN SERVICING SETTLEMENT ACCOUNT. Pursuant to
Section 3 hereof, the Grantor has granted to the Collateral Agent, for the
benefit of the Secured Parties, effective during any Negative Security Period, a
security interest in the Servicing Settlement Account and each other blocked or
other account of the type contemplated in subsection (m) above, and in any and
all funds, securities, Cash Equivalents and other items at any time held therein
as collateral security for the Obligations. This subsection (n) shall constitute
irrevocable notice to the Collateral Agent that the Servicing Settlement Account
is a "no access" account to the Grantor. The Collateral Agent shall hold its
security interest in the Servicing Settlement Account and all funds at any time
held therein for the benefit of the Secured Parties and with all rights of a
secured party under the UCC and other applicable New York law. In no
circumstances shall the Grantor have access to, control of or dominion over the
Servicing Settlement Account. The Collateral Agent hereby appoints the
Administrative Agent to hold the Servicing Settlement Account pursuant to the
terms hereof for the benefit of the Secured Parties with all rights of a secured
party under the UCC and other applicable New York law, and the Administrative
Agent hereby accepts such appointment.
(o) TRANSFER OF FUNDS FROM SETTLEMENT ACCOUNTS. The Administrative
Agent shall transfer by 3:00 P.M. of each Business Day from one or more
Settlement Accounts to an account of the Administrative Agent or to the accounts
of the Lenders, the lesser of (i) all amounts owing to each of the Secured
Parties pursuant to the terms of the Credit Agreement and each of the other Loan
Documents, and (ii) all immediately available funds on deposit in the Settlement
Accounts. The Administrative Agent shall determine the order of transfers from
the Settlement Accounts, and will apply the funds so transferred in payment of
all such amounts so owing in conformity with the provisions of the Credit
Agreement (whether upon instructions of the Collateral Agent or otherwise).
Except during the continuance of a Default or an Event of Default, after the
transfer of funds described in the first sentence of this subclause (o), on each
Business Day, the Administrative Agent shall (unless otherwise instructed by the
Borrower) transfer all remaining available funds on deposit in the Settlement
Accounts (if any) to the Funding Account.
7. RIGHTS OF THE SECURED PARTIES; LIMITATIONS ON SECURED PARTIES' OBLIGATIONS.
(a) It is expressly agreed by the Grantor that, anything herein to
the contrary notwithstanding, the Grantor shall remain liable to observe and
perform all the conditions, duties and obligations to be observed and performed
by it relating to the Collateral, and the Grantor shall perform all of its
duties and obligations thereunder, all in
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accordance with and pursuant to the terms and provisions relating thereto.
Neither the Collateral Agent nor any other Secured Party shall have any
obligation or liability under any instrument, agreement, contract or other
document by reason of or arising out of this Agreement or the granting of a
security interest in any instrument, agreement, contract or other document to
the Collateral Agent on behalf and for the ratable benefit of the Secured
Parties of a security interest therein or the receipt by the Collateral Agent or
any other Secured Party of any payment relating to any of the foregoing pursuant
hereto, nor shall the Collateral Agent or any other Secured Party be required or
obligated in any manner to perform or fulfill any of the obligations of the
Grantor thereunder, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party thereunder, or to present or file any claim, or to
take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(b) Subject to the terms of this Agreement, the Collateral Agent
authorizes the Grantor to collect all sums due or to become due (including,
without limitation, Proceeds) in respect of any Collateral ("Collateral
Payments"), provided that such collection is performed in a prudent and
businesslike manner, and the Collateral Agent may, upon the occurrence and
during the continuance of any Default or Event of Default and without notice,
limit or terminate said authority at any time. If required by the Collateral
Agent at any time during the continuance of any Default or Event of Default, any
Collateral Payments, when first collected by the Grantor shall be promptly
delivered by the Grantor to the Collateral Agent in precisely the form received
(with all necessary indorsements), and until so turned over shall be deemed to
be held in trust by the Grantor for and as the Collateral Agent's property, for
the benefit of the Secured Parties, and shall not be commingled with the
Grantor's other funds or properties. Such Collateral Payments, when so delivered
to the Collateral Agent, shall continue to be collateral security for all of the
Secured Obligations and shall not constitute payment thereof until applied as
hereinafter provided. The Collateral Agent shall upon the request of the
Required Lenders apply all or a part of the funds so delivered to the principal
of and/or interest on any of the Secured Obligations in accordance with the
provisions of Section 17(h) hereof.
(c) The Collateral Agent may at any time, upon the occurrence and
during the continuance of any Default or Event of Default, notify any party that
is or might become obligated to make any Collateral Payment that the Collateral
and the right, title and interest of the Grantor in and under the Collateral
have been assigned to the Collateral Agent, for the benefit of the Secured
Parties, and that any or all of such Collateral Payments shall be made directly
to the Collateral Agent or its designee. Upon the request of the Collateral
Agent, the Grantor will so notify such parties. Upon the occurrence and during
the continuance of a Default or an Event of Default, the Collateral Agent may in
its own name or in the name of others communicate with all such parties to
verify with such parties to the Collateral Agent's satisfaction the existence,
amount and terms of any such obligation in respect of any Collateral Payment.
8. REPRESENTATIONS AND WARRANTIES.
(a) The Grantor hereby represents and warrants to the Secured
Parties as follows:
(i) The Grantor is the sole owner of each item of the
Collateral in which it purports to grant a security interest
hereunder, having good title thereto, free and clear of
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any and all Liens or any other right, title, claim or interest, except
for the security interest granted pursuant to this Agreement.
(ii) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed by the Grantor
in favor of the Collateral Agent, for the benefit of the Secured
Parties, pursuant to this Agreement.
(iii) Each Mortgage Loan serviced by or on behalf of FHLMC
or FNMA included in the Eligible Servicing Portfolio is covered by a
FNMA Acknowledgment Agreement or FNMA Acknowledgment Agreement,
respectively, that is in full force and effect.
(iv) Each Approved Non-Agency Mortgage Loan that is included
in the Eligible Servicing Portfolio is covered by an Acknowledgment
Agreement that is in full force and effect.
(v) Except as otherwise provided in Section 28 hereof, all
action necessary to protect and perfect the valid and perfected first
priority security interest in each item of the Collateral has been
duly taken (except to the extent that subsequent delivery of documents
or instruments is permitted herein or in the Credit Agreement in
connection with Eligible Wet Loans).
(vi) The Grantor's principal place of business and the place
where its records concerning the Collateral are kept are set forth on
Schedule I hereto.
(vii) All information heretofore, herein, or hereafter
supplied to the Collateral Agent or any other Secured Party by or on
behalf of the Grantor with respect to the Collateral is accurate and
complete in all material respects.
(viii) No consent of any other Person is required for the
grant of the security interest provided herein by the Grantor in any
of the Collateral, other than consents that have been obtained
(subject to any consents that may relate to Servicing Rights not
covered by an Acknowledgment Agreement), nor will any consent need to
be obtained upon the occurrence of an Event of Default for the Secured
Parties to exercise their rights with respect to any of such
Collateral.
(ix) To the best of the Grantor's knowledge, no Obligor or
other Person responsible or liable for any Collateral Payment has any
defense, set off, claim or counterclaim against the Grantor that can
be asserted against the Collateral Agent or any other Secured Party.
(b) The Collateral Agent hereby represents and warrants to the Grantor
and each of the other Secured Parties as follows:
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(i) The Collateral Agent is a national banking association
duly incorporated, validly existing and in good standing under the
laws of the United States of America.
(ii) The execution, delivery and performance by the
Collateral Agent of this Agreement are within the Collateral Agent's
corporate powers, have been duly authorized by all necessary corporate
action and do not contravene the Collateral Agent's certificate of
incorporation or bylaws, any Requirement of Law or any order or decree
of any court, or any contractual obligation of the Collateral Agent.
(iii) No consent, authorization, approval or other action
by, and no notice to or filing with, any Governmental Authority or any
other Person is required for the due execution, delivery and
performance by the Collateral Agent of this Agreement.
(iv) This Agreement has been duly executed and delivered by
the Collateral Agent and is the legal, valid and binding obligation of
the Collateral Agent, enforceable against the Collateral Agent in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency and other similar laws affecting
creditors" rights generally and by general principles of equity.
9. ADDITIONAL REPRESENTATIONS AND WARRANTIES CONCERNING MORTGAGE LOANS.
MORTGAGE-BACKED SECURITIES AND SERVICING RECEIVABLES, ETC,.
By adding any Mortgage Loan or Mortgage-Backed Security to the HonoMo
Tranche A Borrowing Base or any Servicing Receivable to the HonoMo Tranche B
Borrowing Base in accordance with Section 4 of this Agreement, the Grantor shall
be deemed to represent and warrant to the Secured Parties at and as of the date
of such addition that each of the statements set forth with respect to such
Mortgage Loan, Mortgage-Backed Security or Servicing Receivable in the
definition of Eligible First Mortgage Loan, Eligible Second Mortgage Loan,
Eligible Mortgage-Backed Security, Eligible Early Buyout Advance Receivable,
Eligible Default-Related Advance Receivable, Eligible Foreclosure Advance
Receivable, Eligible Paid-in-Full Buyout Advance Receivable, Eligible P&I
Advance Receivable or Eligible T&I Advance Receivable, as the case may be, is
true and correct. If any such statement may be untrue or incorrect in any
respect at any time, then the Grantor shall promptly so notify the
Administrative Agent and the Collateral Agent by telefacsimile, and such
Mortgage Loan, Mortgage-Backed Security or Servicing Receivable shall be deemed
to have no value for purposes of determining the HonoMo Tranche A Borrowing Base
or the HonoMo Tranche B Borrowing Base, as the case may be (whether or not the
Grantor has given such notice).
10. STANDARD OF CARE OF COLLATERAL AGENT; DUTIES; INDEMNIFICATION.
The Collateral Agent is a bailee for hire and shall hold the
Collateral in accordance with customary standards for those engaged as
custodians of commercial documents in similar capacities. Nothing contained
herein or in the Credit Agreement shall be construed to make the Collateral
Agent a trustee or other fiduciary for the Administrative Agent or any other
Secured Party. Notwithstanding anything to the contrary contained herein:
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(a) The provisions of the Credit Agreement, this Agreement and the
annexes, schedules, exhibits and attachments hereto set forth the exclusive
duties of the Collateral Agent and no implied duties or obligations shall be
read into this Agreement against the Collateral Agent. The Collateral Agent
shall not be bound in any way by any agreement or contract other than this
Agreement and the annexes, the exhibits and the attachments hereto and any other
agreement to which it is a party. The Collateral Agent shall not be required to
ascertain or inquire as to the performance or observance of any of the
conditions or agreements to be performed or observed by any other party, except
as specifically provided in this Agreement and the annexes, schedules, exhibits
and attachments hereto. The Collateral Agent disclaims any responsibility for
the validity or accuracy of the recitals to this Agreement and any
representations and warranties contained herein, unless specifically identified
as recitals, representations or warranties of the Collateral Agent.
(b) Throughout the term of this Agreement, the Collateral Agent
shall have no responsibility for ascertaining the value, collectability,
insurability, enforceability, effectiveness or suitability (except as otherwise
provided by the Collateral Review Procedures set forth on ATTACHMENT 3 hereto)
of any Collateral, the title of any party therein, the validity or adequacy of
the security afforded thereby or the validity of this Agreement (except as to
Collateral Agent's authority to enter into this Agreement and to perform its
obligations hereunder).
(c) The Collateral Agent shall not be under any duty to examine or
pass upon the genuineness, validity, or legal sufficiency of any of the
documents constituting part of any Mortgage Loan file, including, without
limitation, whether any document purporting to be an assignment is in recordable
form or whether any Evidence of Notice to Customer and Rescission is in
compliance with Regulation Z or other applicable law, and shall be entitled to
assume that all documents constituting part of such files are genuine and valid
and that they are what they purport to be and that any endorsements or
assignments thereof are genuine and valid. The Collateral Agent may rely upon
and shall be protected in acting in good faith upon any notice, resolution,
request, consent, order, certificate, report, statement or other paper or
document appearing on its face to be genuine and to have been signed or
presented by the proper party or parties or by a person or persons authorized to
act on behalf of the proper party or parties. The Collateral Agent shall not be
liable for any action or omission to act as bailee, except for its own gross
negligence or willful misconduct.
(d) No provision of this Agreement shall require the Collateral
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if, in its judgment, it shall believe that repayment of
such funds or adequate indemnity against such risk or liability is not assured
to it.
(e) The Collateral Agent is not responsible for preparing or filing
any reports or returns relating to federal, state or local income taxes with
respect to this Agreement, other than for the Collateral Agent's compensation or
for reimbursement of expenses.
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(f) The Grantor agrees to reimburse, indemnify and hold harmless the
Collateral Agent and its directors, officers, employees, Affiliates and agents
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, reasonable attorneys' fees and disbursements and allocated costs of
internal counsel) or disbursements of any kind or nature that may be imposed on,
incurred by or asserted against the Collateral Agent and its directors,
officers, employees, Affiliates and agents arising from or connected with the
Collateral Agent's execution and performance of this Agreement, including, but
not limited to, the claims of any third parties, including any assignee. The
foregoing shall apply regardless of whether such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements are in any way or to any extent caused, in whole or in part, by
any negligent act or omission of any kind by the Collateral Agent; PROVIDED that
the Grantor shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from gross negligence or willful misconduct
on the part of the Collateral Agent. This provision shall survive the
termination of this Agreement.
(g) At its sole cost and expense, the Collateral Agent shall have
the power to employ such agents as it may deem necessary or appropriate in the
performance of its duties and the exercise of its powers under this Agreement.
11. FEES AND EXPENSES OF COLLATERAL AGENT.
The Collateral Agent shall notify the Grantor of all reasonable fees,
expenses, and charges of the Collateral Agent arising out of the Collateral
Agent's entering into this Agreement and performing its duties and obligations
under this Agreement (including in connection with the enforcement of remedies
hereunder and realization upon the Collateral), and (except as set forth in
Section 10(g) hereof) such fees, expenses and charges shall be paid promptly by
the Grantor or, if already paid by the Collateral Agent, the Grantor shall
reimburse the Collateral Agent promptly therefor. The Collateral Agent shall
receive reasonable additional compensation from the Grantor for services
rendered beyond those specifically enumerated in this Agreement, PROVIDED that
the Collateral Agent shall, to the extent possible, provide reasonable advance
notice to the Grantor of such services and its estimate of fees, expenses and
charges in connection therewith. The Collateral Agent may employ, at the
Grantor's expense, such legal counsel and other experts as it reasonably deems
necessary in connection with entering into this Agreement and performing its
duties and obligations under this Agreement. The Collateral Agent may rely upon
and shall be protected if acting in good faith upon the advice of such legal
counsel or experts.
12. REMOVAL OR RESIGNATION OF COLLATERAL AGENT.
The Administrative Agent, upon the direction of the Required Lenders,
may, at any time, remove and discharge the Collateral Agent from the performance
of its duties under this Agreement, effective (a) immediately if such
termination is for cause or (b) upon not less than thirty (30) days' prior
written notice to the Collateral Agent and the Grantor if such termination is
<PAGE> 24
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without cause. In addition, the Collateral Agent may, at any time, terminate its
agreement to act as the Collateral Agent hereunder, effective upon sixty (60)
days' prior written notice to the Grantor, the Administrative Agent and the
Lenders. Upon the effective date of any such termination, the Collateral Agent
shall promptly deliver the Collateral then held by it and any and all books and
records (or copies thereof) relating thereto, to the Administrative Agent or to
such other person or entity as the Administrative Agent may direct in writing,
and shall cooperate with the Administrative Agent and any successor Collateral
Agent in order to effect the orderly transfer of the Collateral and the rights
and obligations of the Collateral Agent hereunder to any successor Collateral
Agent. Upon resignation or removal of the Collateral Agent hereunder, the
Administrative Agent and the Required Lenders shall appoint a successor
Collateral Agent. If no successor Collateral Agent shall have been so appointed,
and shall have accepted such appointment, before the end of the thirty (30) or
sixty (60) day period referred to above, as the case may be, then the
Administrative Agent (or, at the discretion of the Administrative Agent, an
Affiliate of the Administrative Agent) shall succeed as Collateral Agent.
13. AVAILABILITY OF DOCUMENTS.
The Administrative Agent and each other Secured Party and its agents.
accountants, attorneys and auditors will be permitted during normal business
hours at any time and from time to time upon reasonable notice to the Collateral
Agent to examine and inspect (to the extent permitted by applicable law) the
files, documents, records and other papers in the possession or under the
control of the Collateral Agent relating to any or all of the Collateral and to
make copies thereof. As long as no Default or Event of Default has occurred and
is continuing, any such activity will be at no cost or expense to the Grantor;
if a Default or Event of Default has occurred and is continuing, all costs and
expenses associated with the exercise by the Administrative Agent or any other
Secured Party of its rights under this Section 13 shall be paid by the Grantor
within fifteen (15) days of receipt by the Grantor from the Administrative Agent
or such other Secured Party of a statement setting forth in reasonable detail
the amount thereof.
14. COVENANTS.
The Grantor covenants and agrees with the Collateral Agent and the
other Secured Parties that from and after the date of this Agreement and until
the Secured Obligations are fully satisfied:
(a) FURTHER DOCUMENTATION: PLEDGE OF INSTRUMENTS AND CHATTEL PAPER.
At any time and from time to time, upon the written request of the Collateral
Agent, and at the sole expense of the Grantor, the Grantor will promptly and
duly execute and deliver any and all such further instruments and documents and
take such further action as the Collateral Agent may reasonably deem necessary
or desirable to obtain the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
the Collateral Agent of any Collateral held by the Grantor or in which the
Grantor has any rights not heretofore assigned, the filing of any financing or
continuation statements under the UCC with respect to the Liens and security
interests granted hereby and transferring Collateral to the Collateral Agent's
(or its
<PAGE> 25
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bailee's) possession (if a security interest in such Collateral can be perfected
by possession). The Grantor also hereby authorizes the Collateral Agent to file
any such financing or continuation statement without the signature of the
Grantor to the extent permitted by applicable law. If any of the Collateral
shall be or become evidenced by any instrument, the Grantor agrees to pledge
such instrument to the Collateral Agent and shall duly endorse such instrument
in a manner satisfactory to the Collateral Agent and deliver the same to the
Collateral Agent. The Grantor shall hold any such instrument in its possession
in trust for the benefit of the Secured Parties until the delivery thereof to
the Collateral Agent as provided herein.
(b) Maintenance of Records. The Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. The Grantor will mark its books and records pertaining to the
Collateral to evidence this Agreement and the Lien and security interests
granted hereby. For the Collateral Agent's and the other Secured Parties'
further security, the Grantor agrees that the Collateral Agent and the other
Secured Parties shall have a special property interest in all of the Grantor's
books and records pertaining to the Collateral and, upon the occurrence and
during the continuance of any Default or Event of Default, the Grantor shall
deliver and turn over any such books and records to the Collateral Agent or to
its representatives at any time on demand of the Collateral Agent.
(c) INDEMNIFICATION. In any suit, proceeding or action brought by
the Collateral Agent or any other Secured Party relating to all or any portion
of the Collateral or any Collateral Payment for any sum owing thereunder, or to
enforce any right in respect of the Collateral or any Collateral Payment, the
Grantor will indemnify and save and keep harmless the Collateral Agent and each
of the other Secured Parties from and against all expense, loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by the Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from the Grantor, and all such obligations of the
Grantor shall be and remain enforceable against and only against the Grantor and
shall not be enforceable against the Collateral Agent or any other Secured
Party.
(d) COMPLIANCE WITH LAWS. Etc. The Grantor will comply, in all
material respects, with all acts, rules, regulations, orders, decrees and
directions of any Governmental Authority, applicable to the Collateral or any
part thereof or to the operation of the Grantor's business; PROVIDED, HOWEVER,
that the Grantor may contest any act, regulation, order, decree or direction in
any reasonable manner which shall not, in the sole opinion of the Collateral
Agent, adversely affect the Collateral Agent's rights hereunder or adversely
affect the first priority of its Lien on and security interest in the Collateral
for the benefit of the Secured Parties.
(e) PAYMENT OF OBLIGATIONS. The Grantor will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom and all claims of
any kind (including, without limitation, claims for labor, materials and
supplies), except that no such charge need be paid if (i) such
<PAGE> 26
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non-payment does not involve any danger of the sale, forfeiture or loss of any
of the Collateral or any interest therein, and (ii) such charge is adequately
reserved against in accordance with and to the extent required by GAAP.
(f) COMPLIANCE WITH TERMS OF AGREEMENTS, ETC. In all material
respects, the Grantor will comply with and perform with all obligations,
covenants, conditions and other agreements with respect to any of the Collateral
and all other agreements related thereto to which it is a party or by which it
is bound.
(g) LIMITATION ON LIENS ON COLLATERAL. The Grantor will not create,
permit or suffer to exist, and will defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except the
Liens created under this Agreement and the other Loan Documents, and will defend
the right, title and interest of the Collateral Agent and the other Secured
Parties in and to any of the Grantor's rights in and under the Collateral and in
and to the Proceeds thereof against the claims and demands of all Persons
whomsoever.
(h) LIMITATIONS ON DISPOSITION. The Grantor will not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or contract
to do so, except as permitted by the Credit Agreement, this Agreement or the
other Loan Documents.
(i) FURTHER IDENTIFICATION OF COLLATERAL. The Grantor will, if so
requested by the Collateral Agent, furnish to the Collateral Agent, as often as
the Collateral Agent reasonably requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
(j) NOTICES. The Grantor will advise the Collateral Agent promptly,
in reasonable detail, (i) of any Lien or claim made or asserted against any of
the Collateral, (ii) of any material change in the composition of the
Collateral, and (iii) of the occurrence of any other event which would have a
material adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
(k) RIGHT OF INSPECTION. Upon reasonable notice to the Grantor
(unless a Default or an Event of Default has occurred and is continuing, in
which case no notice is necessary), the Collateral Agent, each of the other
Secured Parties, and their respective agents, accountants, attorneys and
auditors shall at all times have full and free access during normal business
hours to all the files, documents, records and other papers of the Grantor, and
the Collateral Agent, each of the other Secured Parties and their respective
agents, accountants, attorneys and auditors may examine the same, take extracts
therefrom and make photocopies thereof, and the Grantor agrees to render to the
Collateral Agent, at the Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.
(l) CONTINUOUS PERFECTION. The Grantor will not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9402(7) of the
<PAGE> 27
27
UCC (or any other then applicable provision of the UCC) unless the Grantor shall
have given the Collateral Agent at least 30 days' prior written notice thereof
and shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Collateral Agent to
amend such financing statement or continuation statement so that it is not
seriously misleading. The Grantor will not change its principal place of
business or remove its records, each as set forth on Schedule I hereto, unless
it gives the Collateral Agent at least 30 days' prior written notice thereof and
has taken such action as is necessary to cause the security interest of the
Collateral Agent in the Collateral to continue to be perfected.
(m) INSURANCE. The Grantor will keep the Collateral insured against
loss, damage, theft and other risks customarily covered by insurance and such
other risks as the Collateral Agent may reasonably request.
(n) OTHER ACTS. The Grantor will do all acts that a prudent investor
would deem necessary or desirable to maintain, preserve and protect the
Collateral.
(o) DEFENSE OF ACTIONS. The Grantor will appear in and defend, at
the Grantor's sole cost and expense (unless such action or proceeding arises
solely from an act or failure to act by a Secured Party which act or failure to
act is determined to be gross negligence or willful misconduct), any action or
proceeding that may affect its title to or the Secured Parties' interest in the
Collateral.
(p) REPORTS. Within five Business Days after the end of each
calendar month, the Grantor will provide to the Administrative Agent and the
Collateral Agent a report in respect of each type of Eligible Servicing
Receivable, which report shall be set forth (a) except for Eligible P&I advance
Receivables, in loan-level detail (including, without limitation, loan number,
mortgagor name and receivable amount), and (b) with respect to Eligible P&I
Receivables, by investor remittance type, in each case, in form and substance
satisfactory to the Administrative Agent.
15. The Collateral Agent's Appointment as Attorney-in-Fact.
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(a) The Grantor hereby irrevocably constitutes and appoints the
Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which the Collateral Agent may deem necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby gives the Collateral Agent the power and right, on
behalf of the Grantor, without notice to or assent by the Grantor to do the
following:
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(i) to ask, demand, collect, receive and give acquittances
and receipts for any and all moneys due and to become due under any
Collateral and, in the name of the Grantor or in its own name or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any
and all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor and the
costs thereof; and
(iii) (A) to direct any party liable for any Collateral
Payment under any of the Collateral to make any and all Collateral
Payments due and to become due thereunder, directly to the Collateral
Agent or as the Collateral Agent shall direct; (B) to receive payment
of and receipt for any and all moneys, claims and other amounts due
and to become due at any time, in respect of or arising out of any
Collateral; (C) to sign and indorse any invoices, freight or express
bills, bills of lading, storage, trust or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection
with accounts and other documents constituting or relating to the
Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Grantor with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges
or releases as the Collateral Agent may deem appropriate; (G) to
license or, to the extent permitted by an applicable license,
sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any patent or trademark constituting
Collateral, throughout the world for such term or terms, on such
conditions, and in such manner, as the Collateral Agent shall in its
sole discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and to do, at
the Collateral Agent's option and the Grantor's expense, at any time,
or from time to time, all acts and things which the Collateral Agent
reasonably deems necessary to protect, preserve or realize upon the
Collateral aid the Collateral Agent's and the other Secured Parties'
Lien therein, in order to effect the intent of this Agreement, all as
fully and effectively as the Grantor might do.
(b) The Collateral Agent agrees that, except upon the occurrence and
during the continuance of any Default or Event of Default, it will forbear from
exercising the power of
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attorney or any rights granted to the Collateral Agent pursuant to this Section
15. The Grantor hereby ratifies, to the extent permitted by law, all that any
said attorney shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this Section 15 being coupled with an interest,
shall be irrevocable until the Secured Obligations are indefeasibly paid in
full.
(c) The powers conferred on the Collateral Agent hereunder are
solely to protect the Collateral Agent's and the other Secured Parties'
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. The Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees or agents shall be responsible to
the Grantor for any act or failure to act, except for its own gross negligence
or willful misconduct.
(d) The Grantor also authorizes the Collateral Agent, at any time
and from time to time upon the occurrence and during the continuance of a
Default or Event of Default (i) to communicate in its own name with any party to
any contract, instrument, agreement or document constituting Collateral with
regard to the assignment of the right, title and interest of the Grantor therein
and thereunder and other matters relating thereto and (ii) to execute, in
connection with the sale provided for in Section 17 hereof, any indorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
16. Performance by the Collateral Agent of the Grantor's Obligations.
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If the Grantor fails to perform or comply with any of its agreements
contained herein and the Collateral Agent, as provided for by the terms of this
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses of the Collateral Agent
incurred in connection with such performance or compliance, together with
interest thereon at the highest rate then in effect in respect of the Loans,
shall be payable by the Grantor to the Collateral Agent on demand and shall
constitute Secured Obligations secured hereby.
17. Remedies, Rights Upon an Event of Default.
-----------------------------------------
(a) If any Event of Default shall occur and be continuing, the
Collateral Agent shall, at the request of the Administrative Agent (acting upon
the direction of the Required Lenders), or may with the consent of the
Administrative Agent (acting upon the direction of the Required Lenders),
exercise in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, all rights and remedies of a secured party
under the UCC or as otherwise provided by applicable law or in equity. Without
limiting the generality of the foregoing, the Grantor expressly agrees that in
any such event the Collateral Agent, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon the Grantor or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith (i) enter onto
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property where any Collateral or books and records relating thereto are located
and take possession thereof with or without judicial process, (ii) prior to the
disposition of any Collateral, prepare such Collateral for disposition in any
manner and to the extent the Administrative Agent or Collateral Agent deems
appropriate, (iii) collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or sell, lease, assign, give an option or
options to purchase, or sell or otherwise dispose of and deliver said Collateral
(or contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or any of the
Collateral Agent's offices or elsewhere at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent or any other Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold. Each purchaser at any such sale or other disposition shall hold the
Collateral free from any claim or right of whatever kind, including, without
limitation, any equity or right of redemption of the Grantor, and the Grantor
specifically waives and releases (to the extent permitted by law) all rights of
redemption. stay, or appraisal that it has or may have under any rule of law or
statute now existing or hereafter adopted. The Grantor further agrees, at the
Collateral Agent's request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably
select, whether at the Grantor's premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any such collection, recovery receipt,
appropriation, realization or sale, as provided in Section 17(h) hereof, the
Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by the Collateral Agent of any other amount required by any provision of
law, including Section 9-504(1)(c) of the UCC, need the Collateral Agent account
for the surplus, if any, to the Grantor. To the maximum extent permitted by
applicable law, the Grantor waives all claims, damages, and demands against the
Secured Parties arising out of the repossession, retention or sale of the
Collateral. The Grantor agrees that the Collateral Agent need not give more than
ten days' notice of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. The Grantor shall remain liable for any deficiency
if the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which the Secured Parties are entitled, the Grantor also
being liable for the fees and expenses of any attorneys employed by the
Collateral Agent and the other Secured Parties to collect such deficiency. Upon
the exercise by the Collateral Agent of any remedy hereunder, the Grantor shall
(x) upon request of the Collateral Agent, deliver to the Collateral Agent all
computer software, tapes, records, documents, escrow deposits and other deposits
in its possession or under its control relating to the Collateral, and (y)
cooperate with the Collateral Agent in every respect in effecting such delivery.
(b) In furtherance and not in limitation of the rights of the
Collateral Agent set forth in this Section 17, upon the acceleration of the
maturity of the Loans or other Secured Obligations as provided in the Credit
Agreement, at the request and direction of the Administrative Agent, the
Collateral Agent may, in addition to any other rights it may have, do one or
more of the following, subject to the terms of the relevant Servicing Contract,
Acknowledgment Agreement, Agency Guide or applicable law (it being understood
that if there is any conflict between any such relevant Servicing Contract,
Acknowledgment Agreement,
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Agency Acknowledgment Agreement, Agency Guide or applicable law and this
Agreement, then the terms of such Servicing Contracts, Acknowledgment Agreement,
Agency Acknowledgment Agreement, Agency Guide or applicable law shall prevail):
(i) succeed the Grantor as servicer under any or all of the
Servicing Contracts as absolute assignee thereof and not merely as
security;
(ii) appoint a third party as successor servicer under any
or all of the Servicing Contracts;
(iii) sell to a third party or itself or otherwise transfer
any of the Grantor's right, title. interest or obligations with
respect to the Servicing Contracts, including without limitation the
right to hold and/or place the escrow deposits associated therewith;
or
(iv) require the Grantor, notwithstanding any action taken
by the Collateral Agent under clause (iii), to remain as servicer
under any Servicing Contract for a reasonable period of time, such
period not to exceed 180 days.
Notwithstanding anything herein to the contrary, the Collateral Agent shall have
no obligations as servicer under any Servicing Contracts unless and until the
Collateral Agent has succeeded the Grantor as servicer of such Mortgage Loans
pursuant to this subsection (b).
(c) The Collateral Agent's rights under clauses (i), (ii) and (iii)
of subsection (b) above shall respectively include, without limitation, the
right to succeed the Grantor as servicer, appoint a successor servicer or
transfer any or all of its rights with respect to the Servicing Rights and/or
the Servicing Contracts of the Grantor, or any successor to the Grantor in
bankruptcy or similar proceedings, rejects any Servicing Contracts. As successor
servicer under such clause (i), the Collateral Agent shall notify all interested
Persons thereof and take such further action as it shall deem necessary or
appropriate. Upon the Collateral Agent's (x) succeeding the Grantor as servicer
under such clause (i), (y) appointing a third party as a successor servicer
under any Servicing Contract under such clause (ii), or (z) transferring any of
the Grantor's right, title, interest and obligations under such clause (iii),
the Grantor shall have no further rights under or with respect to the Servicing
Rights (or to such rights, title, interest or obligations in the case of a
transfer under clause (iii)), to any other documents pertaining thereto or to
the related escrow deposits.
(d) Upon the exercise by the Collateral Agent of any remedy set
forth in subsections (b) or (c) above, the Grantor shall:
(i) upon request of the Collateral Agent, deliver to the
Collateral Agent all computer software, tapes, records, documents,
escrow deposits and other deposits in its possession or under its
control relating to the Collateral, and
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(ii) cooperate with the Collateral Agent in every reasonable
respect in effecting the succession of a successor servicer.
(e) If the Collateral Agent or any appointee of the Collateral Agent
succeeds the Grantor as successor servicer under any Servicing Contract, the
Collateral Agent or such appointee, as the case may be, shall only assume those
obligations that a successor servicer under such Servicing Contract is obligated
to assume; PROVIDED that neither the Collateral Agent or its appointee nor any
other Secured Party shall be liable for any failure of the Grantor to perform
its obligations under any Servicing Contract or for any other breach thereof.
Nothing herein contained shall be construed as an assumption by the Collateral
Agent or its appointee or any other Secured Party of any liability of the
Grantor with respect to any of the Collateral, and the Grantor shall be and
remain responsible for all such liabilities.
(f) The Grantor also agrees to pay all reasonable costs and expenses
of the Collateral Agent and each of the other Secured Parties, including,
without limitation, attorneys' fees, incurred in connection with the enforcement
of any of their rights and remedies hereunder.
(g) The Grantor hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.
(h) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by the Collateral Agent
in the following order of priorities:
First, to the payment of the costs and expenses of such
sale, disposition or other realization, including, without limitation,
all expenses of the Collateral Agent and its agents including the fees
and expenses of its counsel, and all expenses, liabilities and
advances made or incurred by the Collateral Agent and the other
Secured Parties in connection therewith or pursuant to Section 7
hereof;
Next, to the Administrative Agent, for distribution by it in
accordance with the terms of the Credit Agreement; and
Finally, after payment in full of all the Secured
Obligations, to the payment to the Grantor, or its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same
as a court of competent jurisdiction may direct.
18. Limitation on the Secured Parties' Duty in Respect of Collateral.
----------------------------------------------------------------
No Secured Party shall have any duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto, except that each Secured Party
shall use reasonable care with respect to the Collateral in its possession or
<PAGE> 33
33
under its control. Upon request of the Grantor, the Collateral Agent shall
account for any moneys received by it in respect of any foreclosure on or
disposition of the Collateral.
19. Rights with Respect to GNMA; Acknowledgment Agreements.
------------------------------------------------------
(a) Notwithstanding anything contained herein or in any of the other
Loan Documents to the contrary, the Collateral Agent, by executing this
Agreement, and each of the other Secured Parties, by executing the Credit
Agreement, acknowledge that (a) the Grantor is entitled to servicing income with
respect to any GNMA pool of Mortgage Loans only so long as the Grantor is a GNMA
Issuer/Servicer in good standing; (b) upon the Grantor's loss of such good
standing status, the Secured Parties' rights to any such servicing income also
terminate; and (c) the pledge of rights to servicing income with respect to any
GNMA pool of Mortgage Loans hereunder conveys no rights (such as the right to
become a substitute servicer) that are not otherwise specifically provided for
in the applicable GNMA Guide. Notwithstanding anything contained herein or in
the other Loan Documents to the contrary, to the extent that any Acknowledgment
Agreement is executed and delivered by FNMA and such agreement or the FNMA Guide
relating thereto provides that the Grantor may not pledge security interests in
rights relating to servicing income to secure Loans, the proceeds of which Loans
are used for purposes prohibited by such agreement or FNMA Guide, then the
Collateral Agent and the other Secured Parties shall not be deemed to have such
a security interest to the extent such security interest serves as collateral
for such prohibited use; provided that nothing contained herein shall affect the
validity or enforceability of (x) security interests in such rights pledged to
secure Loans whose purposes are not prohibited and (y) the assignment of the
proceeds of such rights to the Secured Parties, and provided further that if at
any time the use of the proceeds of such Loans is no longer prohibited, then
such security interest shall be valid, binding, perfected, enforceable and in
full force and effect.
(b) The security interest created by this Agreement is subject and
subordinate to all rights, powers, and prerogatives of FNMA under and in
connection with (i) the terms and conditions of that certain Acknowledgment
Agreement, with respect to the security interest created hereunder, by and
between FNMA, the Grantor and the Collateral Agent, (ii) the Mortgage Selling
and Servicing Contract and all applicable Pool Purchase Contracts between FNMA
and the Grantor, and (iii) the FNMA Guide, as such Guide is amended from time to
time ((ii) and (iii) collectively, the "FNMA Contract"), which rights, powers,
and prerogatives include, without limitation, the right of FNMA to terminate the
FNMA Contract with or without cause and the right to sell, or have transferred,
the Servicing Rights as therein provided.
(c) The security interest referred to in this Agreement is subject
and subordinate in each and every respect (a) to all rights, powers and
prerogatives of one or more of the following: FHLMC, FNMA, GNMA, or such other
investors that own mortgage loans, or which guaranty payments on securities
based on and backed by pools of mortgage loans, identified herein (the
"Investors"); and (b) to all claims of an Investor arising out of any and all
defaults and outstanding obligations of the debtor to the Investor. Such rights,
powers and prerogatives of the Investors may include, without limitation, one or
more of the following: the right of an Investor to disqualify the Grantor from
participating in a mortgage selling or servicing
<PAGE> 34
34
program or a securities guaranty program with such Investor; the right to
terminate contract rights of the Grantor relating to such a mortgage selling or
servicing program or securities guaranty program; and the right to transfer and
sell all or any portion of such contract rights following the termination of
those rights.
20. Notices.
-------
All notices and other communications provided for hereunder shall be
in writing (including telegraphic, telex, telecopy, or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, addressed
to any party hereto at the address of such Secured Party specified in the Credit
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other communications shall, when
mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when
deposited in the mails, delivered to the telegraph company, confirmed by telex
answerback, telecopied with confirmation or receipt, delivered to the cable
company, or delivered by hand to the addressee or its Collateral Agent,
respectively.
21. Amendments. Etc.
---------------
No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Grantor therefrom shall in any event be effective unless
the same shall be in writing, signed by the Grantor, the Administrative Agent
(upon the direction of the Required Lenders or all of the Lenders, as required
by the Credit Agreement) and the Collateral Agent. and then any such waiver or
consent shall only be effective in the specific instance and for the specific
purpose for which given.
22. No Waiver: Remedies.
-------------------
(a) No failure on the part of any Secured Party to exercise, and no
delay in exercising any right hereunder shall operate as a waiver thereof: nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative, may be exercised singly or concurrently, and are
not exclusive of any remedies provided by law or any of the other Loan
Documents.
(b) Failure by any of the Secured Parties at any time or times
hereafter to require strict performance by the Grantor or any other Person of
any of the provisions, warranties, terms or conditions contained in any of the
Loan Documents now or at any time or times hereafter executed by the Grantor or
any such other Person and delivered to any of the Secured Parties shall not
waive, affect or diminish any right of any of the Secured Parties at any time or
times hereafter to demand strict performance thereof, and such right shall not
be deemed to have been modified or waived by any course of conduct or knowledge
of any of the Secured Parties, or any agent, officer or employee of any Secured
Party.
<PAGE> 35
35
23. Successors and Assigns.
----------------------
This Agreement and all obligations of the Grantor hereunder shall be
binding upon the successors and assigns of the Grantor, and shall, together with
the rights and remedies of the Collateral Agent hereunder, inure to the benefit
of the Collateral Agent, each of the other Secured Parties, and their respective
successors and assigns. Notwithstanding the foregoing, the Grantor may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender, the Administrative Agent and the
Collateral Agent.
24. Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
25. Entire Agreement; Severability.
------------------------------
This Agreement and the other Loan Documents constitute the entire
agreement and understanding between the parties hereto and supersede any and all
prior or contemporaneous agreements and understandings of such Persons, oral or
written, relating to the subject matter hereof and thereof. In addition, there
are no promises, undertakings, representations or warranties by the Collateral
Agent or any other Secured Party relating to the subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents. All
waivers by the Grantor provided for in this Agreement have been specifically
negotiated by the parties with full cognizance and understanding of their
respective rights. If any of the provisions of this Agreement shall be held
invalid or unenforceable, this Agreement shall be construed as if not containing
such provisions, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
26. Waiver of Jury Trial.
--------------------
EACH OF THE GRANTOR, THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THE CREDIT AGREEMENT
OR UNDER ANY OF THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT RELATING TO ANY
OF THE FOREGOING.
27. Further Indemnification.
-----------------------
The Grantor agrees to pay, and to save the Collateral Agent and each
other Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
<PAGE> 36
36
28. Release and Reinstatement.
-------------------------
(a) During any Positive Security Period, upon the written request of
the Grantor and subject to the conditions precedent set forth below, the
Collateral Agent shall release the Collateral from the Lien in favor of the
Collateral Agent for the benefit of the Secured Parties hereunder and, as
evidence of such release of Lien, shall execute and deliver to the Grantor (i) a
confirmation of such release in the form of that attached hereto as ATTACHMENT
9, (ii) such UCC termination statements as are necessary to terminate all
existing UCC-I financing statements covering the Collateral filed by the
Collateral Agent on behalf of the Secured Parties and (iii) such notices and
instructions to all appropriate Persons to release such Lien on any
Mortgage-Backed Security, it being expressly acknowledged and agreed by the
Collateral Agent, the Agent and the Grantor that during any Positive Security
Period the Secured Obligations are intended to be and become unsecured
obligations. During the effectiveness of a Positive Security Period, the
Borrower, in lieu of the Collateral Agent, will maintain possession of the
Collateral as set forth herein, and shall utilize a trust receipt in the form of
that attached hereto as ATTACHMENT 5-B and letters in the forms of those
attached hereto as ATTACHMENT 7-C, ATTACHMENT 7-E and ATTACHMENT 7-G in
releasing Collateral to the Grantor and shipping Collateral pursuant hereto in
lieu of the trust receipt form attached hereto as ATTACHMENT 5-A and the letters
attached hereto as ATTACHMENT 7-B, ATTACHMENT 7-D and ATTACHMENT 7-F,
respectively. As conditions precedent to the release of Lien contemplated
hereby:
(i) Immediately prior to and immediately following the
release of Lien contemplated hereby, there shall not exist any Default
or Event of Default;
(ii) There shall exist a Positive Security Period both
immediately prior to and immediately following the release of Lien
contemplated hereby; and
(iii) The Grantor shall have executed and conditionally
delivered to the Collateral Agent new UCC-1 financing statements in
form and substance acceptable to the Collateral Agent accompanied by
the Grantor's irrevocable written authorization for the Collateral
Agent to file such UCC- I financing statements upon the occurrence of
a Negative Security Event.
(b) Nothing contained in this Section 28 shall in any manner or to
any extent affect the obligations of the Grantor hereunder and under the other
Loan Documents, it being expressly acknowledged and agreed by the Grantor that
the release of the Lien contemplated hereby shall not affect the terms and
provisions of the Loan Documents except to the extent that during any Positive
Security Period, the Secured Obligations shall not be secured by the Collateral,
PROVIDED that notwithstanding the other provisions of this Agreement to the
contrary, during the effectiveness of any Positive Security Period, each
document to be delivered to or held by the Collateral Agent shall be delivered
to or held by the Borrower in lieu thereof, and each review and report to be
undertaken or signed by the Collateral Agent shall be undertaken or signed by
the Borrower in lieu thereof.
<PAGE> 37
37
(c) If following the Closing Date or the release of the Lien
contemplated by subparagraph (a) above there shall occur a Negative Security
Event:
(i) The Grantor shall automatically be deemed to assign,
convey, mortgage, pledge, hypothecate and transfer to the Collateral
Agent, on behalf and for the ratable benefit of the Secured Parties,
and automatically be deemed to grant to the Collateral Agent, on
behalf and for the ratable benefit of the Secured Parties, a security
interest in, and effective upon the occurrence of such Negative
Security Event hereby does so assign, convey, mortgage, pledge,
hypothecate and transfer to the Collateral Agent, for the ratable
benefit of the Secured Parties, and hereby does so grant a security
interest in, the Collateral, including, without limitation, all
Collateral then in the possession of the Collateral Agent, as
collateral security for the Secured Obligations;
(ii) The Collateral Agent shall no later than five Business
Days following receipt of notification from the Administrative Agent
of such Negative Security Event (A) record the UCC-1 financing
statements previously delivered to it pursuant to subparagraph
(a)(iii) above and (B) commence to utilize the trust receipt in the
form of that attached hereto as ATTACHMENT 5-A and the letters in the
forms of those attached hereto as ATTACHMENT 7-B, ATTACHMENT 7-D and
ATTACHMENT 7-F in releasing Collateral to the Grantor and shipping
Collateral pursuant to this Agreement; and
(iii) The Grantor shall take such other actions and execute
and deliver such additional documents, instruments and agreements as
the Administrative Agent, the Collateral Agent and the Required
Lenders shall reasonably request to obtain for the Secured Parties the
benefit of the Collateral.
(d) The reinstatement of the Lien of the Collateral Agent for the
benefit of the Secured Parties on the Collateral following a Negative Security
Event shall in no manner affect the rights, powers and remedies of the
Collateral Agent or the other Secured Parties otherwise available under the Loan
Documents, including, without limitation, the right to accelerate the Secured
Obligations and to refuse to make further Loans under the Credit Agreement in
the event there exists a Default or an Event of Default.
(e) Upon the written request of the Grantor, so long as no Default
or Event of Default has occurred and is continuing or would result therefrom,
from time to time (but in no event more frequently than once per calendar
quarter) the Collateral Agent shall, at the sole cost and expense of the
Grantor, release Servicing Receivables and any other Servicing Rights arising in
connection with Servicing Contracts with Approved Investors (other than an
Agency) which do not constitute Eligible Servicing Receivables or otherwise
constitute part of the Eligible Servicing Portfolio and which are not included
in the HonoMo Tranche B Borrowing Base from the Lien in favor of the Collateral
Agent for the benefit of the Secured Parties hereunder and, as evidence of such
release of Lien, shall execute and deliver to the Grantor (i) a confirmation of
such release in a form reasonably satisfactory to the Grantor, the Collateral
Agent and the Administrative Agent, and (ii) such UCC amendments as are
necessary to amend all existing UCC-1 financing statements covering the
Servicing Receivables so released.
<PAGE> 38
38
(f) Upon the written request of the Grantor, so long as no Default
or Event of Default has occurred and is continuing or would result therefrom,
from time to time (but in no event more frequently than once per calendar
quarter) the Collateral Agent shall, at the sole cost and expense of the
Grantor, release Mortgage Loans constituting Collateral which are not included
in the HonoMo Tranche A Borrowing Base from the Lien in favor of the Collateral
Agent for the benefit of the Secured Parties hereunder and, as evidence of such
release of Lien, shall execute and deliver to the Grantor (i) a confirmation of
such release in a form reasonably satisfactory to the Grantor, the Collateral
Agent and the Administrative Agent, and (ii) such further documents as are
necessary to effect and evidence the release of such Lien on such Mortgage
Loans.
29. Survival of Representations.
---------------------------
All covenants, agreements, representations and warranties made herein
shall survive the making by the Lenders of the Loans and the execution and
delivery to the Administrative Agent for the account of the Lenders of the Notes
regardless of any investigation made by the Collateral Agent or any of the other
Secured Parties and of the Collateral Agent's and the other Secured Parties'
access to any information and shall continue in full force and effect so long as
any Secured Obligation is unpaid or unperformed.
30. Section Titles.
--------------
The Section titles contained in this Agreement are and shall be
without substantive meaning or content of any kind whatsoever and are not a part
of this Agreement.
31. Execution in Counterparts.
-------------------------
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first above written.
HONOLULU MORTGAGE COMPANY, INC.
By: ______________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
<PAGE> 39
39
By:_______________________________
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON, as Collateral Agent
By: ______________________________
Name:
Title:
<PAGE> 40
40
SCHEDULE I TO SECURITY AND COLLATERAL AGENCY AGREEMENT
LOCATION OF RECORDS AND CERTAIN COLLATERAL
------------------------------------------
Principal Place of Business:
201 Merchant Street
Suite 1700
Honolulu, Hawaii 96813
Location of Records:
201 Merchant Street
Suite 1700
Honolulu, Hawaii 96813
<PAGE> 41
41
<TABLE>
List of Attachments
-------------------
<S> <C>
Attachment 1-A HonoMo Tranche A Borrowing Base Addition Report (Mortgage
Loans)
Attachment 1-B HonoMo Tranche A Borrowing Base Addition Report
(Mortgage-Backed Securities)
Attachment l-C HonoMo Tranche B Borrowing Base Addition Report (Servicing
Receivables)
Attachment 1-D Receivables Certificate
Attachment 2 Required Documents
Attachment 3 Required Review Procedures
Attachment 4-A HonoMo Tranche A Borrowing Base Certificate
Attachment 4-B HonoMo Tranche B Borrowing Base Certificate
Attachment 5-A Trust Receipt (During Negative Security Period)
Attachment 5-B Trust Receipt (During Positive Security Period)
Attachment 6 Trust Receipt Procedures
Attachment 7-A Shipping Request and Authorization
Attachment 7-B Transmittal Letter (During Negative Security Period)
Attachment 7-C Transmittal Letter (During Positive Security Period)
Attachment 7-D Bailee Letter (Agency Pool Formation During Negative
Security Period)
Attachment 7-E Bailee Letter (Agency Pool Formation During Positive
Security Period)
Attachment 7-F Bailee Letter (Early Buyout Advance Related Receivables During
Negative Security Period)
Attachment 7-G Bailee Letter (Early Buyout Related Advance Related Receivables
During Positive Security Period)
Attachment 8 Additional Required Documents
Attachment 9 Lien Release Acknowledgment
</TABLE>
<PAGE> 42
42
ATTACHMENT 1-A
--------------
TO SECURITY AGREEMENT
---------------------
[On Letterhead of Grantor]
HONOMO TRANCHE A BORROWING BASE ADDITION REPORT
(Mortgage Loans)
No.___________
------------ --, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, between the Lenders party thereto
from time to time, the Balance Lenders, The Chase Manhattan Bank, as
Administrative Agent (the "Administrative Agent"), The First National Bank of
Boston Association, as Collateral Agent (the "Collateral Agent"), HomeSide
Lending, Inc. and the undersigned, and the Amended and Restated Security and
Collateral Agency Agreement (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), dated as of January 31, 1997, among the
Administrative Agent, the undersigned and the Collateral Agent, we hereby add
the Mortgage Loans listed on the schedules attached hereto to the HonoMo Tranche
A Borrowing Base. The capitalized terms used herein but not defined shall have
the respective meanings as set forth in the Credit Agreement or the Security
Agreement.
With respect to each Mortgage Loan listed on the attached Schedule, we
hereby certify that either (i) each of the documents listed on ATTACHMENT 2 to
the Security Agreement that are required to be delivered for Mortgage Loans that
may be included in the HonoMo Tranche A Borrowing Base has been delivered to you
prior to (or is being delivered to you simultaneously with) the delivery of this
report or (ii) in the case of Eligible Wet Loans, each of the documents listed
on ATTACHMENT 2 to the Security Agreement will be delivered to you within 10
days after the date such Eligible Wet Loan is included in the HonoMo Tranche A
Borrowing Base. We also certify that each such Mortgage Loan has closed or is
scheduled to close by the close of business on the next Business Day after the
date hereof. If any such scheduled closing does not take place, we agree to
notify you by 12:00 noon (New York City time) on the Business Day after such
scheduled closing and agree that such Mortgage Loan shall be given no value for
purposes of determining the HonoMo Tranche A Borrowing Base.
We hereby confirm that the Mortgage Loans listed on the attached
schedules are pledged to the Collateral Agent as Collateral under the Security
Agreement for the benefit of the Secured Parties as security for the Secured
Obligations. We acknowledge and agree that the
<PAGE> 43
43
inclusion of such Mortgage Loans in the HonoMo Tranche A Borrowing Base
constitutes "new value" as that term is used in Section 9-304(4) of the New York
Uniform Commercial Code.
HONOLULU MORTGAGE COMPANY INC.
By: ___________________________
Name: _______________________
Title: ______________________
<PAGE> 44
44
ATTACHMENT l-B
--------------
TO SECURITY AGREEMENT
---------------------
[On Letterhead of Grantor]
HONOMO TRANCHE A BORROWING BASE ADDITION REPORT
(Mortgage-Backed Securities)
No.____________
------------ --, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, between the Lenders party thereto
from time to time, the Balance Lenders, The Chase Manhattan Bank, as
Administrative Agent (the "Administrative Agent"), The First National Bank of
Boston Association, as Collateral Agent (the "Collateral Agent"), HomeSide
Lending, Inc. and the undersigned, and the Amended and Restated Security and
Collateral Agency Agreement (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), dated as of January 31, 1997, among the
Administrative Agent, the undersigned and the Collateral Agent, we hereby
confirm the issuance of the Mortgage-Backed Securities listed on the schedule
attached hereto and add such Mortgage-Backed Securities to the HonoMo Tranche A
Borrowing Base. The capitalized terms used herein but not defined shall have the
respective meanings as set forth in the Credit Agreement or the Security
Agreement.
With respect to each Mortgage-Backed Security listed on the attached
schedule, we hereby certify that (a) if such Mortgage-Backed Security is
certificated, it has been (or is simultaneously herewith being) deposited with
you or your designated agent, bailee or custodian, endorsed in blank for
transfer, and (b) if such Mortgage-Backed Security is a Book-Entry
Mortgage-Backed Security, such Mortgage-Backed Security is the subject of a
Perfected Assignment.
<PAGE> 45
45
We hereby confirm that the Mortgage-Backed Securities listed on the
attached schedule are pledged to you as Collateral under the Security Agreement
for the benefit of the Secured Parties as security for the Secured Obligations.
HONOLULU MORTGAGE COMPANY, INC.
By: ___________________________
Name: _____________________
Title: ____________________
<PAGE> 46
46
ATTACHMENT l-C
TO SECURITY AGREEMENT
[Grantor Letterhead]
HONOMO TRANCHE B BORROWING BASE ADDITION REPORT
-----------------------------------------------
No.______
-------------, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, among the Lenders party thereto from
time to time, the Balance Lenders, The Chase Manhattan Bank as Administrative
Agent, The First National Bank of Boston as Collateral Agent, HomeSide Lending,
Inc. and the undersigned, and the Amended and Restated Security and Collateral
Agency Agreement (as amended, supplemented or otherwise modified from time to
time, the "Security Agreement"), dated as of January 31, 1997, among the
Administrative Agent, the undersigned and the Collateral Agent, we hereby add
the Servicing Receivables listed on the attached schedules hereto to the HonoMo
Tranche B Borrowing Base. The capitalized terms used herein but not defined
shall have the respective meanings as set forth in the Credit Agreement or
Security Agreement.
With respect to each Eligible Early Buyout Advance Receivable,
Eligible Foreclosure Advance Receivable, and/or Eligible Paid-ln-Full Buyout
Receivable listed on the attached Schedule A, we hereby certify that each of the
documents listed on ATTACHMENT 2 of the Security Agreement that is required to
be delivered for such Servicing Receivables that may be included in the HonoMo
Tranche B Borrowing Base has been delivered to you prior to (or is being
delivered to you simultaneously with) the delivery of this report.
<PAGE> 47
47
We hereby confirm that the Servicing Receivables listed on the
attached Schedule A are pledged to the Collateral Agent as Collateral under the
Security Agreement for the benefit of the Secured Parties as security for the
Secured Obligations. We acknowledge and agree that the inclusion of such
Servicing Receivables in the HonoMo Tranche B Borrowing Base constitutes "new
value" as that term is used in Section 9-304(4) of the New York Uniform
Commercial Code.
HONOLULU MORTGAGE COMPANY, INC.
By:____________________________
Name:______________________
Title:_____________________
<PAGE> 48
48
Schedule A
to HonoMo Tranche B Borrowing Base Addition Report No._____
1. ELIGIBLE EARLY BUYOUT ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
2. ELIGIBLE PAID-IN-FULL BUYOUT ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
3. ELIGIBLE FORECLOSURE ADVANCE RECEIVABLES
Mortgagor Receivable
Loan No. Name Amount
- -------- ---- ------
<PAGE> 49
49
ATTACHMENT l-D
TO SECURITY AGREEMENT
[Grantor Letterhead]
RECEIVABLES CERTIFICATE
-----------------------
No.______
---------------, ----
[Collateral Agent]
[Address]
Ladies and Gentlemen:
Pursuant to the terms of the Amended and Restated Credit Agreement (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), dated as of January 31, 1997, among the Lenders party thereto from
time to time, the Balance Lenders, The Chase Manhattan Bank as Administrative
Agent, The First National Bank of Boston as Collateral Agent, HomeSide Lending,
Inc. and the undersigned, and the Amended and Restated Security and Collateral
Agency Agreement (as amended, supplemented or otherwise modified from time to
time, the "Security Agreement"), dated as of January 31, 1997, among the
Administrative Agent, the undersigned and the Collateral Agent, set forth below
is a true and correct report of the Eligible P&l Advance Receivables, Eligible
T&I Advance Receivables and Eligible Default-Related Advance Receivables
included in the HonoMo Tranche B Borrowing Base on and as of the date hereof.
The capitalized terms used herein but not defined shall have the respective
meanings as set forth in the Credit Agreement or Security Agreement.
We hereby confirm that the Servicing Receivables listed herein are
pledged to the Collateral Agent as Collateral under the Security Agreement for
the benefit of the Secured Parties as security for the Secured Obligations. We
acknowledge and agree that the inclusion of such Servicing Receivables in the
HonoMo Tranche B Borrowing Base constitutes "new value" as that term is used in
Section 9-304(4) of the New York Uniform Commercial Code.
1. ELIGIBLE P&I ADVANCE RECEIVABLES: $[____________]
2. ELIGIBLE T&I ADVANCE RECEIVABLES: $[____________]
<PAGE> 50
50
3. ELIGIBLE DEFAULT-RELATED ADVANCE
RECEIVABLES: $[_____________]
TOTAL: $[_____________]
HONOLULU MORTGAGE COMPANY, INC.
By:________________________
Name:___________________
Title:__________________
<PAGE> 51
51
ATTACHMENT 2
------------
TO SECURITY AGREEMENT
---------------------
REQUIRED DOCUMENTS
------------------
REQUIRED DOCUMENTS
------------------
FOR MORTGAGE LOANS
------------------
SUBMITTED FOR INCLUSION IN
--------------------------
THE HONOMO TRANCHE A BORROWING BASE
-----------------------------------
1. Original Mortgage Loan note executed in favor of the Grantor (endorsed or
assigned to the Grantor if purchased by the Grantor) and endorsed by the
Grantor in blank.
2. In the case of any Mortgage Loan that is included in the Tranche A
Borrowing Base for a period of 180 days or more, original recorded mortgage
or deed of trust securing the above Mortgage Loan. In lieu of a recorded
document, the Collateral Agent may accept a copy certified by the escrow
company, title insurance company or closing agent to be a true copy of the
original document.
3. In the case of any Mortgage Loan that is included in the Tranche A
Borrowing Base for a period of 180 days or more, original assignment of the
mortgage or deed of trust by the Grantor to the Collateral Agent with
assignee in blank, but otherwise in recordable form.
4. If the Grantor was not the original holder of the mortgage, the original or
a copy (certified by the Grantor and the closing attorney, correspondent,
records office or escrow or title company) of a proper assignment or
assignments of the mortgage or deed of trust from the original holder,
through any subsequent transferees, to the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed, an original of such note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original or photocopy of such power of attorney certified
by the Grantor.
<PAGE> 52
52
REQUIRED DOCUMENTS FOR
----------------------
MORTGAGE-BACKED SECURITIES
--------------------------
TO BE INCLUDED IN THE
---------------------
HONOMO TRANCHE A BORROWING BASE
-------------------------------
If such Mortgage-Backed Security is certificated, the certificate has
been deposited with the Collateral Agent or an agent, bailee and custodian of
the Collateral Agent, properly endorsed in blank for transfer or, if such
Mortgage-Backed Security is a Book-Entry Mortgage-Backed Security, evidence that
such Book-Entry Mortgage-Backed Security is the subject of a Perfected
Assignment. As applicable, all documentation required by the applicable Agency
for MORNET and Ginnie Net submissions.
<PAGE> 53
53
REQUIRED DOCUMENTS FOR ELIGIBLE EARLY BUYOUT
--------------------------------------------
ADVANCE RECEIVABLES, ELIGIBLE FORECLOSURE
-----------------------------------------
ADVANCE RECEIVABLES AND ELIGIBLE PAID IN FULL
---------------------------------------------
BUYOUT ADVANCE RECEIVABLES
--------------------------
A. Eligible Early Buyout Advance Receivables:
-----------------------------------------
1. Original Mortgage Loan note, endorsed or assigned to the Grantor, and
endorsed by the Grantor in blank.
2. Original recorded mortgage or deed of trust securing the above Mortgage
Loan.
3. Original assignment of the mortgage or deed of trust by the Grantor to the
Collateral Agent with assignee in blank, but otherwise in recordable form.
4. The original of a proper assignment or assignments of the mortgage or deed
of trust from the original holder, through any subsequent transferees, to
the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed for the purpose of converting the interest payable on such
Mortgage Loan from an adjustable rate to a fixed rate, an original of such
note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original or photocopy of such power of attorney certified
by the Grantor.
B. Eligible Foreclosure Advance Receivables:
----------------------------------------
1. A copy of a letter from an appropriate attorney or representative of a
title insurance company that the applicable foreclosure sale has been
completed and that the Grantor was the successful bidder in respect
thereof, or, in lieu thereof, such other evidence of the completion of such
foreclosure as the Collateral Agent may request.
2. As soon as available, a copy of, as applicable (a) Form HUD-27011 Part A
(Single Family application For Insurance Benefits), in the case of an
FHA-Insured Mortgage Loan, (b) VA Form 26-1874 (Claim Under Loan
Guarantee), in the case of a VA-Insured Mortgage Loan, or (c) such claim
form or other documentation as is required by the applicable Approved
Investor or applicable private mortgage insurer. In each case, such
documentation shall be completed by the Grantor in compliance with the FNMA
Guide, the FHLMC Guide or other Approved Investor guidelines, as
applicable.
<PAGE> 54
54
C. Eligible Paid-in-Full Buyout Advance Receivables:
------------------------------------------------
1. Original Mortgage Loan note, endorsed or assigned to the Grantor, and
endorsed by the Grantor in blank.
2. Original recorded mortgage or deed of trust securing the above Mortgage
Loan.
3. Original assignment of the mortgage or deed of trust by the Grantor to the
Collateral Agent with assignee in blank, but otherwise in recordable form.
4. The original of a proper assignment or assignments of the mortgage or deed
of trust from the original holder, through any subsequent transferees, to
the Grantor.
5. With respect to a Mortgage Loan for which a note modification agreement has
been executed for the purpose of converting the interest payable on such
Mortgage Loan from an adjustable rate to a fixed rate, an original of such
note modification agreement.
6. If any of the above documents has been executed by a person holding a power
of attorney, an original of such power of attorney certified by the
Grantor.
7. Copies of all correspondence to and from the mortgagor in respect of the
related Mortgage Loan evidencing such mortgagor's intention to liquidate
such Mortgage Loan through a payoff, and setting forth the anticipated
closing date thereof.
<PAGE> 55
55
ATTACHMENT 3
------------
TO SECURITY AGREEMENT
---------------------
REQUIRED REVIEW PROCEDURES
--------------------------
1. All documents submitted are consistent with the information provided in the
related schedule(s) attached to the HonoMo Tranche A Borrowing Base
Addition Report or HonoMo Tranche B Borrowing Base Addition Report, as the
case may be, as to mortgagor name, face amount, and loan number.
2. The note and mortgage/deed of trust each bears an original signature or
signatures which appear to be those of the person or persons named as the
maker and mortgagor/ trustor, or, in the case of a certified copy of the
mortgage/deed of trust, such copy bears what appears to be a reproduction
of such signature or signatures.
3. Except for (a) the endorsement to the Grantor of the note in the event such
loan was purchased by the Grantor and (b) the endorsement in blank of the
note by the Grantor, neither the note, the mortgage/deed of trust, nor the
assignment(s) of the mortgage deed of trust contain any irregular writings
which appear on their face to affect the validity of any such endorsement
or to restrict the enforceability of the document on which they appear.
4. The note is endorsed in blank.
5. The assignment of the mortgage/deed of trust bears an original signature.
<PAGE> 56
56
ATTACHMENT 4-A
--------------
TO SECURITY AGREEMENT
---------------------
FORM OF HONOMO TRANCHE A BORROWING BASE CERTIFICATE
---------------------------------------------------
(See Attached)
<PAGE> 57
57
ATTACHMENT 4-B
--------------
TO SECURITY AGREEMENT
---------------------
FORM OF HONOMO TRANCHE B BORROWING BASE CERTIFICATE
---------------------------------------------------
(See Attached)
<PAGE> 58
58
ATTACHMENT 5-A
--------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT
-------------
(Release to Grantor During Negative Security Period)
Trust Receipt #______
--------- ---, ----
The undersigned (the "Grantor"), acknowledges receipt from The First
National Bank of Boston, acting as secured party, agent, bailee and custodian
(in such capacity, the "Collateral Agent") for the exclusive benefit of the
Secured Parties (as that term is defined in the Amended and Restated Security
and Collateral Agency Agreement (as amended, supplemented or otherwise modified
from time to time, the "Security Agreement"), dated as of January 31, 1997,
between the Collateral Agent, the Grantor and The Chase Manhattan Bank, as
Administrative Agent, of the following described property (the "Trust
Property"), possession of which is herewith entrusted to the Grantor for the
purposes set forth below:
Mortgage Loan Loan #________ Note Amount: ______ Obligor:_________
Purpose: [Specify nature of clerical or other documentation problem to
be corrected.]
The Grantor hereby acknowledges that a security interest pursuant to
the New York Uniform Commercial Code in the Trust Property and in the proceeds
of the Trust Property has been granted to the Collateral Agent, for the benefit
of the Secured Parties, pursuant to the Security Agreement.
In consideration of the delivery of the Trust Property by the
Collateral Agent to the Grantor, the Grantor hereby agrees to hold the Trust
Property in trust for the Collateral Agent and the Secured Parties as provided
under and in accordance with all provisions of the Security Agreement and to
return the Trust Property to the Collateral Agent no later than the close of
business on the fourteenth (14th) calendar day following the date hereof or, if
such day is not a Business Day, on the immediately preceding Business Day.
The Grantor further agrees that at no time shall the value (determined
in accordance with Section 4.1 of the Credit Agreement) of all Mortgage Loans
(as defined in the Credit Agreement) included in the HonoMo Tranche A Borrowing
Base (as defined in the
<PAGE> 59
59
Credit Agreement) with respect to which notes or other documentation has been
released under trust receipts exceed 1% of the Tranche A Commitment Amount (as
defined in the Credit Agreement) then in effect.
HONOLULU MORTGAGE COMPANY, INC.
By:_____________________
Name:___________________
Title:__________________
Delivery to Grantor Acknowledged
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:______________________
Name:____________________
Title:___________________
The undersigned, acknowledges that the above-mentioned Trust Property has been
returned to the Collateral Agent on ______________ __, ____.
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:______________________
Name:____________________
Title:___________________
<PAGE> 60
60
ATTACHMENT 5-B
--------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT
(Release to Grantor During Positive Security Period)
Trust Receipt #___
-------- ---, ----
The undersigned (the "Grantor"), acknowledges receipt from The First
National Bank of Boston, acting as agent, bailee and custodian (in such
capacity, the "Collateral Agent") for the exclusive benefit of the Secured
Parties (as that term is defined in the Amended and Restated Security and
Collateral Agency Agreement (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), dated as of January 31, 1997, between
the Collateral Agent, the Grantor and The Chase Manhattan Bank, as
Administrative Agent, of the following described property (the "Trust
Property"), possession of which is herewith entrusted to the Grantor for the
purposes set forth below:
Mortgage Loan Loan #_____ Note Amount: ______ Obligor:_____
Purpose: [Specify nature of clerical or other documentation problem to be
corrected.]
In consideration of the delivery of the Trust Property by the
Collateral Agent to the Grantor, the Grantor hereby agrees to hold the Trust
Property in trust for the Collateral Agent and the Secured Parties as provided
under and in accordance with all provisions of the Security Agreement and to
return the Trust Property to the Collateral Agent no later than the close of
business on the fourteenth (14th) calendar day following the date hereof or, if
such day is not a Business Day, on the immediately preceding Business Day.
The Grantor further agrees that at no time shall the value (determined
in accordance with Section 4.1 of the Credit Agreement) of all Mortgage Loans
(as defined in the Credit Agreement) included in the HonoMo Tranche A Borrowing
Base (as defined in the Credit Agreement) with respect to which notes or other
documentation has been released under trust receipts exceed 1% of the Tranche A
Commitment Amount (as defined in the Credit Agreement) then in effect.
HONOLULU MORTGAGE COMPANY. INC.
By:_________________________
Name: ______________________
Title:______________________
<PAGE> 61
61
Delivery to Grantor Acknowledged
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: __________________________
Name: ________________________
Title: _______________________
The undersigned, acknowledges that the above-mentioned Trust Property has been
resumed to the Collateral Agent on ___________ ___, ____.
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: __________________________
Name: ________________________
Title: _______________________
<PAGE> 62
62
ATTACHMENT 6
------------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT PROCEDURES
------------------------
The Grantor and the Collateral Agent will adhere to the following procedures
with respect to trust receipts:
(a) Trust receipts will be prepared by the Grantor. They will be signed by an
Authorized Officer of the Grantor and acknowledged by the Collateral Agent.
Trust receipts will be sequentially numbered by the Collateral Agent, which
will maintain a log with a line for each trust receipt indicating the
sequential number, date issued, Mortgage Loan number, Obligor, note amount
and date Trust Property returned.
(b) The Collateral Agent will maintain all original trust receipts in a drawer
or other depository of a type that is suitable and customary for such
documents controlled solely by the Collateral Agent, with the trust
receipts filed in numerical order.
(c) The Collateral Agent will not release any documentation relating to any
Mortgage Loan included in the HonoMo Tranche A Borrowing Base against a
trust receipt if the value (as determined in accordance with Section 4.1 of
the Credit Agreement) of such Mortgage Loan, when added to the value (as so
determined) of all other such Mortgage Loans included in the HonoMo Tranche
A Borrowing Base then outside the possession of the Collateral Agent under
trust receipts, would exceed 1% of the Tranche A Commitment Amount then in
effect.
(d) Upon return of the Trust Property to the Collateral Agent, the trust
receipt will be surrendered to the Grantor for cancellation.
<PAGE> 63
63
ATTACHMENT 7-A
--------------
TO SECURITY AGREEMENT
---------------------
[Grantor Letterhead]
FORM OF SHIPPING REQUEST AND AUTHORIZATION
------------------------------------------
Date: ________________________
[Collateral Agent]
[Address]
Attention: ___________________
This letter is to serve as authorization for you to endorse and ship the
following loans:
Loan Number Mortgagor Name Note Amount
- -----------------------------------------------
Commitment #______________ is to be shipped to the following address:
NAME:
ADDRESS:
ATTENTION:
Please endorse the notes as follows:
Please ship the loan documents either by [ ] or by such other courier service as
we have designated to you as "approved." You are not responsible for any delays
in shipment or any other actions or inactions of the courier; HOWEVER, because
the commitment expires on, __________________, ____, we ask that you deliver the
loan documents to the courier no later than _________________________, ____.
Please have the courier bill us by using our account #_______________________.
If you should have any questions, or should feel the need for additional
documentation, please do not hesitate to call .
HONOLULU MORTGAGE COMPANY, INC.
By: _________________________
Name: _______________________
Title:_______________________
<PAGE> 64
64
ATTACHMENT 7-B
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
TRANSMITTAL LETTER
------------------
(During Negative Security Period)
[Approved Investor Name]
[Address]
Attn:
Re:Purchase of Mortgage Loans from
Honolulu Mortgage Company. Inc.
- -------------------------------
Ladies and Gentlemen:
Attached please find those Mortgage Loans listed separately on the
attached schedule, which Mortgage Loans are owned by Honolulu Mortgage Company,
Inc. (the "Company") and are being delivered to you for purchase.
The Mortgage Loans constitute a portion of the Collateral under (and
as the term "Collateral" and capitalized terms not otherwise defined hereunder
are defined in) the Amended and Restated Security and Collateral Agency
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997, by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent (the "Collateral Agent"). Each of the Mortgage Loans is
subject to a security interest in favor of the Collateral Agent for the benefit
of the Secured Parties, which security interest shall be automatically released
upon our receipt of the full amount of the purchase price of such Mortgage Loans
(as set forth on the schedule attached hereto) by wire transfer to the following
account maintained with the Collateral Agent:
WIRE INSTRUCTIONS TO MORTGAGE LOAN SETTLEMENT ACCOUNT:
[To be provided by the Collateral Agent]
Pending your purchase of each Mortgage Loan and until payment therefor
is received, the aforesaid security interest therein will remain in full force
and effect, and you shall hold possession of such Collateral and the
documentation evidencing same in trust and as custodian, agent, and bailee for
and on behalf of the Secured Parties. In the event any Mortgage Loan is
unacceptable for purchase, return the rejected item directly to the undersigned
at the address set forth below. In no event shall any Mortgage Loan be returned
or sales proceeds remitted to the Company. The Mortgage Loan must be so returned
or sales proceeds remitted in
<PAGE> 65
65
full no later than forty-five (45) days from the date hereof. If you are unable
to comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN,
AGENT, AND BAILEE FOR THE SECURED PARTIES ON THE TERMS DESCRIBED IN THIS LETTER.
THE UNDERSIGNED REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE
LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER
TO THE UNDERSIGNED AT THE FOLLOWING ADDRESS: [SPECIFY ADDRESS]; HOWEVER, YOUR
FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: _____________________________
Name: ___________________________
Title:___________________________
IRREVOCABLY ACKNOWLEDGED AND AGREED TO:
- ---------------------------------
[Type name of Approved Investor]
By: _____________________________
Name: ___________________________
Title:___________________________
<PAGE> 66
66
ATTACHMENT 7-C
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
TRANSMITTAL LETTER
------------------
(During Positive Security Period)
[Approved Investor Name]
[Address]
Attn:
Re: Purchase of Mortgage Loans from
Honolulu Mortgage Company. Inc.
-------------------------------
Ladies and Gentlemen:
Attached please find those mortgage loans listed separately on the
attached schedule (the "Mortgage Loans"), which Mortgage Loans are owned by
Honolulu Mortgage Company, Inc. (the "Company") and are being delivered to you
for purchase.
Please remit the full amount of the purchase price of such Mortgage
Loans (as set forth on the schedule attached hereto) by wire transfer to the
following account maintained with The Chase Manhattan Bank, as Administrative
Agent:
WIRE INSTRUCTIONS TO MORTGAGE LOAN SETTLEMENT ACCOUNT:
[To be provided by the Collateral Agent]
In the event any Mortgage Loan is unacceptable for purchase, return
the rejected item directly to the undersigned at the address set forth below. In
no event shall any Mortgage Loan be returned or sales proceeds remitted to the
Company. The Mortgage Loan must be so returned or sales proceeds remitted in
full no later than forty-five (45) days from the date hereof. If you are unable
to comply with the above instructions, please so advise the undersigned
immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: ____________________________
Name: __________________________
<PAGE> 67
67
Title:__________________________
IRREVOCABLY ACKNOWLEDGED AND AGREED TO:
_______________________________________
[Type name of Approved Investor]
By: ____________________________
Name: __________________________
Title:__________________________
<PAGE> 68
68
ATTACHMENT 7-D
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Agency Pool Formation During Negative Security Period)
[Certificating Custodian]
Re: Honolulu Mortgage Company, Inc.
Shipment of Mortgage Loans for Pool Formation
---------------------------------------------
Attached please find those Mortgage Loans listed separately on the
attached schedule, which are owned by Honolulu Mortgage Company, Inc. (the
"Company") and are being delivered to you, as custodian/trustee (the
"Certificating Custodian"), for certification in connection with the formation
of a Mortgage Loan pool supporting the issuance of a Mortgage-Backed Security
described as follows: _____________________________
The Mortgage Loans constitute a portion of the Collateral under (and
as the term "Collateral" and capitalized terms not otherwise defined hereunder
are defined in) that certain Amended and Restated Security and Collateral Agency
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997, by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent. Each of the Mortgage Loans is subject to a security
interest in favor of the Collateral Agent for the benefit of the Secured Parties
(as such term is defined in the Agreement), which security interest shall be
automatically released upon the issuance of the Mortgage-Backed Security in
accordance with the terms of the prescribed GNMA, FNMA or FHLMC form enclosed
herewith. Upon issuance, the Mortgage-Backed Security shall be subject to a lien
in favor of the Collateral Agent for the benefit of the Secured Parties.
Pending issuance of the Mortgage-Backed Security, the aforesaid
security interest in each Mortgage Loan will remain in full force and effect,
and you shall hold possession thereof and the documentation evidencing such
Mortgage Loans in trust and as custodian, agent and bailee for and on behalf of
the Secured Parties. Please return to the undersigned within ten (10) days after
receiving such documentation, either (A) evidence of each Mortgage Loan's
initial certification for inclusion in a Mortgage Loan pool or (B) all
documentation relating to such Mortgage Loan if such Mortgage Loan is not
initially certified. In addition, please immediately return to the undersigned
all documentation relating thereto to the Collateral Agent if (x) such Mortgage
Loan is initially certified but it is subsequently determined that such Mortgage
Loan is not suitable for inclusion in a Mortgage Loan pool supporting a
Montage-Backed Security prior to the issuance of such Mortgage-Backed Security
or (y) no Mortgage-Backed Security supported by a pool including such Mortgage
Loan has been issued within forty five (45) days of your receipt of such
documentation. In no event shall any Mortgage Loan be returned or proceeds
relating thereto be remitted to the Company. Please segregate and properly
identify all
<PAGE> 69
69
such documentation as collateral of the Secured Parties that secures the Secured
Obligations. If you are unable to comply with the above instructions, please so
advise the undersigned immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN,
AGENT AND BAILEE FOR THE SECURED PARTIES ON THE TERMS DESCRIBED IN THIS LETTER.
THE COLLATERAL AGENT REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED
MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF
THIS LETTER TO THE COLLATERAL AGENT AT THE FOLLOWING ADDRESS: [SPECIFY ADDRESS];
HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: _______________________________
Name: _____________________________
Title:_____________________________
ACKNOWLEDGMENT OF RECEIPT
[Certificating Custodian]
By: _______________________________
Name: _____________________________
Title:_____________________________
Date:
<PAGE> 70
70
ATTACHMENT 7-E
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Agency Pool Formation During Positive Security Period)
[Certificating Custodian]
Re: Honolulu Mortgage Company, Inc.
Shipment of Mortgage Loans for Pool Formation
---------------------------------------------
Attached please find those mortgage loans listed separately on the
attached schedule (the "Mortgage Loans"), which are owned by Honolulu Mortgage
Company, Inc. (the "Company") and are being delivered to you, as
custodian/trustee (the "Certificating Custodian"), for certification in
connection with the formation of a Mortgage Loan pool supporting the issuance of
a mortgage-backed security (the "Mortgage-Backed Security") described as
follows: _____________________________________.
Please return to the undersigned within ten (10) days after receiving
such documentation, either (A) evidence of each Montage Loan's initial
certification for inclusion in a Mortgage Loan pool or (B) all documentation
relating to such Mortgage Loan if such Mortgage Loan is not initially certified.
In addition, please immediately return to the undersigned all documentation
relating thereto to the Collateral Agent if (x) such Mortgage Loan is initially
certified but it is subsequently determined that such Mortgage Loan is not
suitable for inclusion in a Mortgage Loan pool supporting a
Mortgage-Backed-Security prior to the issuance of such Mortgage-Backed Security
or (y) no Mortgage-Backed Security supported by a pool including such Mortgage
Loan has been issued within forty-five (45) days of your receipt of such
documentation. In no event shall any Mortgage Loan be returned or proceeds
relating thereto be remitted to the Company.
If you are unable to comply with the above instructions, please so
advise the undersigned immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: _______________________________
Name:
Title:
<PAGE> 71
71
ACKNOWLEDGE OF RECEIPT
[Certificating Custodian]
By: _______________________________
Name:
Title:
Date:
<PAGE> 72
72
ATTACHMENT 7-F
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Eligible Early Buyout Advance Receivables
During Negative Security Period)
[Name of Attorney or Title Company]
Re: Honolulu Mortgage Company, Inc.
Shipment of Mortgage Loans for Foreclosure Proceedings
Attached please find those Mortgage Loans listed separately on the
attached schedule, which are owned by Honolulu Mortgage Company, Inc. (the
"Company") and are being delivered to you, as agent and bailee (the "Bailee"),
in connection with a request by the Company to the Bailee to commence
foreclosure proceedings.
The Mortgage Loans constitute a portion of the Collateral under (and
as the term "Collateral" and capitalized terms not otherwise defined hereunder
are defined in) that certain Amended and Restated Security and Collateral Agency
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of January 31, 1997, by and among the Grantor, The Chase
Manhattan Bank, as Administrative Agent, and The First National Bank of Boston,
as Collateral Agent. Each of the Mortgage Loans is subject to a security
interest in favor of the Collateral Agent for the benefit of the Secured
Parties, which security interest shall be automatically released upon the
consummation of the foreclosure sale. Upon such sale, the proceeds thereof shall
be subject to a lien in favor of the Collateral Agent for the benefit of the
Secured Parties.
Pending receipt of such proceeds, the aforesaid security interest in
each Mortgage Loan will remain in full force and effect, and you shall hold
possession thereof and the documentation evidencing such Mortgage Loans in trust
and as custodian, agent and bailee for and on behalf of the Secured Parties.
Please return to the undersigned within 45 days after receiving such
documentation, either (A) evidence of the completion of the foreclosure
proceedings in respect of such Mortgage Loan or (B) all documentation relating
to such Mortgage Loan if such foreclosure proceedings have not been completed.
In no event shall any Mortgage Loan be returned or proceeds relating thereto be
remitted to the Company. Please segregate and properly identify all such
documentation as collateral of the Secured Parties that secures the Secured
Obligations. If you are unable to comply with the above instructions, please so
advise the undersigned immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO HOLD THE MORTGAGE LOANS IN TRUST AND TO BE THE CUSTODIAN,
AGENT AND BAILEE FOR THE SECURED PARTIES ON
<PAGE> 73
73
THE TERMS DESCRIBED IN THIS LETTER. THE COLLATERAL AGENT REQUESTS THAT YOU
ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING
AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE COLLATERAL AGENT AT THE
FOLLOWING ADDRESS: [SPECIFY ADDRESS]; HOWEVER, YOUR FAILURE TO DO SO DOES NOT
NULLIFY SUCH CONSENT.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:______________________________
Name:
Title:
ACKNOWLEDGMENT OF RECEIPT
[Attorney or Title Company]
By:_______________________________
Name:
Title:
Date:
<PAGE> 74
74
ATTACHMENT 7-G
--------------
TO SECURITY AGREEMENT
---------------------
[Collateral Agent Letterhead]
BAILEE LETTER
-------------
(Eligible Early Buyout Advance Receivable
During Positive Security Period)
[Name of Attorney or Title Company]
Re: Honolulu Mortgage Company, Inc.
Shipment of Mortgage Loans for Foreclosure Proceedings
------------------------------------------------------
Attached please find those mortgage loans listed separately on the
attached schedule (the "Mortgage Loans"), which are owned by Honolulu Mortgage
Company, Inc. (the "Company") and are being delivered to you, as agent and
bailee (the "Bailee"), in connection with a request by the Company to the Bailee
to commence foreclosure proceedings.
Please return to the undersigned within 45 days after receiving such
documentation, either (A) evidence of the completion of the foreclosure
proceedings in respect of such Mortgage Loan or (B) all documentation relating
to such Mortgage Loan if such foreclosure proceedings have not been completed.
In no event shall any Mortgage Loan be returned or proceeds relating thereto be
remitted to the Company. If you are unable to comply with the above
instructions, please so advise the undersigned immediately.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:_________________________
Name:
Title:
ACKNOWLEDGMENT OF RECEIPT
[Attorney or Title Company]
By:__________________________
Name:
Title:
Date:
<PAGE> 75
75
ATTACHMENT 8
------------
TO SECURITY AGREEMENT
---------------------
ADDITIONAL REQUIRED DOCUMENTS
-----------------------------
1. The original mortgage or deed of trust securing the Mortgage Loan.
2. A copy of the title insurance policy (or a binding commitment of the title
company therefor) covering at least the face amount of the Mortgage Loan
note, with the original policy of title insurance insuring the mortgage or
deed of trust as a first or second lien, as applicable, on the related
Property written by a title company and containing exceptions acceptable to
an Agency or other Approved Investor.
3. If in the Grantor's possession, evidence of the applicable FHA commitment
for insurance with respect to each FHA-insured Mortgage Loan note, or VA
commitment for guaranty with respect to each VA-guaranteed Mortgage Loan
note, and of the applicable commitment for private Mortgage Loan insurance
with respect to each conventional Mortgage Loan note having a Loan-to-Value
Ratio in excess of 80%.
4. A copy of the executed Take-Out Commitment for each Mortgage Loan, if
applicable.
5. Evidence of fire and extended coverage insurance in an amount not less than
the lower of the following: (a) the amount of the Mortgage Loan and (b)
100% of the insurable value of the improvements. Such insurance shall be
written by a company satisfactory to each Agency or other Approved
Investor.
6. Evidence of Notice to Customer and Rescission required by the federal
Truth-in Lending Law and Federal Reserve Regulation Z.
7. A copy of any required appraisal of the Property.
8. Other documentation (including information contained in electronic,
microfilm or other medium) in the possession of the Grantor as the
Administrative Agent or the Collateral Agent may reasonably deem
appropriate, including, without limitation, such documentation necessary to
fulfill requirements of Take-Out Commitments.
<PAGE> 76
76
ATTACHMENT 9
------------
TO SECURITY AGREEMENT
---------------------
CONFIRMATION OF RELEASE OF LIEN
The undersigned, HONOLULU MORTGAGE COMPANY, INC. (the "Company"),
pursuant to Section 28 of that certain Amended and Restated Security and
Collateral Agency Agreement dated as of January 31, 1997, by and among the
Company, THE FIRST NATIONAL BANK OF BOSTON, as Collateral Agent, and THE CHASE
MANHATTAN BANK, as Administrative Agent (the "Security Agreement," and with
capitalized terms not otherwise defined herein used with the meanings given such
terms in the Security Agreement), hereby requests the Collateral Agent to
execute and deliver to the Company this Confirmation of Release of Lien. To
induce the Collateral Agent to so execute and deliver this Confirmation of
Release of Lien, the Company hereby represents and warrants to each of the
Secured Parties that all conditions precedent to the release of Lien set forth
in Section 28(a) of the Security Agreement have been and following the execution
by the Collateral Agent of this Confirmation of Release of Lien will be
satisfied.
DATED: ___________________________________, ____.
HONOLULU MORTGAGE COMPANY, INC.
By: __________________________
Name: ________________________
Title: _______________________
RELEASE OF LIEN CONFIRMED
this __ day of ____________________, 199_:
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By: _______________________________
Name: _____________________________
Title: ______________________________
<PAGE> 1
EXHIBIT 10.34
FORM OF BMC SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AND COLLATERAL AGENCY AGREEMENT (this
"Agreement"), dated January 31, 1997, made by HOMESIDE HOLDINGS, INC., a Florida
corporation (formerly known as Barnett Mortgage Company; the "Grantor"), THE
CHASE MANHATTAN BANK, in its capacity as Administrative Agent under the Credit
Agreement referred to below (in such capacity, the "Administrative Agent"), and
THE FIRST NATIONAL BANK OF BOSTON, as Collateral Agent for the financial
institutions party to the Credit Agreement referred to below (in such capacity,
the "Collateral Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, HomeSide Lending, Inc., a Florida corporation ("HomeSide"),
and Honolulu Mortgage Company, Inc., a Hawaiian corporation ("HonoMo"), have
entered into an Amended and Restated Credit Agreement, dated as of January 31,
1997, with the financial institutions from time to time party thereto, as
Lenders (the "Lenders"), the lenders from time to time designated therein as
Balance Lenders (the "Balance Lenders"), the Collateral Agent and the
Administrative Agent (said Agreement, as it may be amended, supplemented or
otherwise modified from time to time, being the "Credit Agreement");
WHEREAS, the Credit Agreement amends and restates in its entirety the
Existing Credit Agreement;
WHEREAS, obligations of the Grantor in respect of the Existing Credit
Agreement are secured pursuant to, INTER ALIA, the Security and Collateral
Agency Agreement, dated as of May 31, 1996 (the "EXISTING BMC SECURITY
AGREEMENT") among the parties to this Agreement;
WHEREAS, (i) the Grantor is the beneficial and record owner of 100% of
the issued and outstanding capital stock of HomeSide, and (ii) HomeSide is the
beneficial and record owner of 100% of the issued and outstanding capital stock
of HonoMo;
WHEREAS, in connection with the Credit Agreement, the Grantor has
entered into the BMC Guarantee; and
WHEREAS, it is a condition precedent to the making of the Loans that
the Existing BMC Security Agreement shall have been amended and restated as
provided herein;
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree that on the Closing Date the Existing BMC Security Agreement shall
be amended and restated in its entirety as follows:
<PAGE> 2
2
WHEREAS, it is a condition precedent to the making of the Loans that
the Grantor shall have entered into this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make the Loans, the Grantor hereby agrees with the
Administrative Agent and the Collateral Agent on behalf and for the ratable
benefit of the Secured Parties (as hereinafter defined) as follows:
1. Defined Terms.
-------------
Terms defined in the UCC (as hereinafter defined) are used herein as
therein defined. As used in this Agreement, capitalized terms defined in the
Credit Agreement and not otherwise defined herein have the meanings given in the
Credit Agreement, and the following terms have the meanings specified below
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):
"AGENCY CUSTODIAL AGREEMENT" shall mean the GNMA Custodial Agreement.
"CERTIFICATING CUSTODIAN" shall mean any Person acting as the
Grantor's "certificating custodian," as such term is used in the GNMA Guide, for
purposes of (a) certifying that the documentation relating to Mortgage Loans
received by such Person from the Grantor (or the Collateral Agent) is complete
and acceptable under the GNMA Guide for purposes of including such Mortgage Loan
in a pool of Mortgage Loans in which Mortgage-Backed Securities will represent
interests and (b) holding such documentation following formation of such pools
and issuance of such Mortgage-Backed Securities. The Certificating Custodian
shall at all times be party to the Agency Custodial Agreement.
"COLLATERAL" has the meaning set forth in Section 3 of this Agreement.
"GNMA CUSTODIAL AGREEMENT" shall mean the agreement, as amended,
modified or supplemented from time to time, between GNMA, the Grantor and any
Person meeting the eligibility requirements set forth in the GNMA Guide to serve
as a "certificating custodian," as such term is used in the GNMA Guide, pursuant
to which such Person is authorized to act as Certificating Custodian.
"PROCEEDS" shall mean "proceeds," as such term is defined in Section
9-306(1) of the UCC, and, in any event, includes, without limitation, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Grantor from time to time with respect to any of the Collateral, (b) any and
all payments (in any form whatsoever) made or due and payable to the Grantor
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of Governmental
Authority), and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
<PAGE> 3
3
"SECURED OBLIGATIONS" shall mean the "Obligations," as such term is
defined in the Holdings Guarantee.
"SECURED PARTIES" shall mean, collectively, the Lenders, the Balance
Lenders, the Collateral Agent and the Administrative Agent.
"SERVICING CONTRACT" shall mean each of the contracts or other
agreements to which the Grantor is a party pursuant to which the Grantor holds
Servicing Rights, in each case as amended, supplemented or otherwise modified
from time to time, including, without limitation, (a) all rights of the Grantor
to receive moneys due and to become due to it thereunder or in connection
therewith, other than any portion of principal and interest payable under the
related Mortgage Loans to the extent not attributable to servicing fees payable
to the Grantor under such Servicing Contracts, (b) all rights of the Grantor to
damages arising out of, or for, breach or default in respect thereof, and (c)
all rights of the Grantor to perform and to exercise all remedies thereunder.
"SERVICING RECEIVABLES" shall mean the accounts, receivables and other
amounts owing to the Grantor for its own account in respect of Servicing Rights
or under a Servicing Contract, including, without limitation, all Eligible
Servicing Receivables.
"SERVICING RIGHTS" shall mean the rights of the Grantor to service
Mortgage Loans for or on behalf of the owner or holder of such Mortgage Loans
(including investors in Mortgage-Backed Securities supported by Mortgage Loans)
pursuant to any direct agreement between the Grantor and GNMA, together with the
legal titles, mortgagor files, escrows and records relating to such Mortgage
Loans and the right to receive servicing fee income and any other income arising
from or in connection with such Mortgage Loans, including late charges,
termination fees and charges and all other incidental fees and charges.
"SERVICING SETTLEMENT ACCOUNT" shall have the meaning given such term
in the HomeSide Security Agreement.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Collateral Agent's and the other
Secured Parties' security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York,
the term "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
2. Appointment of Collateral Agent.
-------------------------------
Pursuant to the Credit Agreement the Collateral Agent has been
appointed to act as secured party, agent, bailee and custodian for the exclusive
benefit of the Secured Parties with respect to the Collateral. The Collateral
Agent hereby acknowledges that it has accepted such
<PAGE> 4
4
appointment and agrees to maintain and hold all Collateral at any time delivered
to it as secured party, agent, bailee and custodian for the exclusive benefit of
the Secured Parties. The Collateral Agent acknowledges and agrees that it is
acting and will act with respect to the Collateral for the exclusive benefit of
the Secured Parties and is not, and shall not at any time in the future be,
subject, with respect to the Collateral, in any manner or to any extent, to the
direction or control of the Grantor or any of the other Loan Parties, except as
expressly permitted hereunder and under the other Loan Documents. The Collateral
Agent agrees to act in accordance with this Agreement and in accordance with any
written instructions from the Administrative Agent delivered pursuant to the
Credit Agreement. Under no circumstances shall the Collateral Agent deliver
possession of Collateral to the Grantor or any other Person (other than the
Administrative Agent) or otherwise release any Collateral from the Lien created
hereby, except in accordance with the express terms of this Agreement or
otherwise upon the written instructions of the Administrative Agent.
3. Grant of Security Interest.
--------------------------
As collateral security for the full and prompt payment when due
(whether at stated maturity, by acceleration or otherwise) of, and the
performance of, all the Secured Obligations and to induce the Lenders to make
the Loans pursuant to the Credit Agreement, effective during any Negative
Security Period, the Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, on behalf and for the
ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, on behalf and for the ratable benefit of the Secured Parties, a security
interest in, all of the Grantor's right, title and interest in, to and under the
following, whether now owned or hereafter acquired, whether now in existence or
hereafter arising (all of which being herein collectively called the
"Collateral"):
(a) all (i) Servicing Rights, (ii) Servicing Contracts, (iii) Hedge
Contracts held by the Grantor relating to any Servicing Rights or Servicing
Contracts, (iv) rights to receive payments in connection with Servicing
Contracts, Servicing Rights and Hedge Contracts, whether on account of the
performance of services, upon the termination of Servicing Rights, Servicing
Contracts, Hedge Contracts or otherwise (including, without limitation, all
Eligible Servicing Receivables (and all deeds, contracts, agreements,
instruments of title and other documents received or receivable in respect
thereof)), and (v) rights with respect to the placement of escrow deposits
associated with such Servicing Rights and Servicing Contracts and all rights to
the payment of money or provision of concessions or services with respect
thereto;
(b) the Servicing Settlement Account and any other custodial account
of the Grantor held by or in the name of the Collateral Agent or its bailee or
designee (including, without limitation, the Administrative Agent), and any and
all funds, securities and other items at any time held in such accounts and any
and all rights of the Grantor to insurance payments made in respect of such
accounts;
(c) all files, documents, agreements, instruments, deeds, chattel
paper, inventory consisting of Servicing Rights held for sale, insurance
policies, personal property, contract rights, accounts, general intangibles,
records, surveys, certificates, correspondence,
<PAGE> 5
5
appraisals, computer records, tapes, discs, cards, accounting records and other
books, records, information and data of the Grantor relating to the Collateral
(including all such items necessary or helpful in the administration or
servicing of the Collateral) of whatever kind or nature whatsoever relating to
the Servicing Rights or any other Collateral, and all other documents or
instruments delivered to the Collateral Agent in respect of the Collateral; and
(d) to the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of, each of the foregoing.
4. Servicing Settlement Account.
----------------------------
(a) SERVICING SETTLEMENT ACCOUNT. With respect to any amounts owed
to the Grantor in respect of Servicing Receivables or other Servicing Rights
(including, without limitation, all Eligible Servicing Receivables, proceeds of
the sale of Servicing Rights and all termination and other fees payable in
respect of Servicing Rights) other than from a mortgagor in respect of the
applicable Mortgage Loan, if requested by the Administrative Agent, the
Collateral Agent and the Grantor shall instruct any obligor in respect of such
Servicing Receivable or other Servicing Rights that all amounts payable on
account of such Servicing Receivable or other Servicing Rights are to be paid
directly by such party to the Servicing Settlement Account. The Grantor shall,
upon demand of the Collateral Agent or the Administrative Agent, provide the
Collateral Agent and the Administrative Agent with evidence that the Grantor has
directed such obligors to pay such amounts directly into the Servicing
Settlement Account.
(b) SECURITY INTEREST IN SERVICING SETTLEMENT ACCOUNT. Pursuant to
Section 3 hereof, the Grantor has granted to the Collateral Agent, for the
benefit of the Secured Parties, effective during any Negative Security Period, a
security interest in the Servicing Settlement Account and in any and all funds
at any time held therein as collateral security for the Secured Obligations.
This subsection (b) shall constitute irrevocable notice to the Collateral Agent
that the Servicing Settlement Account is a "no access" account to the Grantor.
The Collateral Agent shall hold its security interest in the Servicing
Settlement Account and all funds at any time held therein for the benefit of the
Secured Parties and with all rights of a secured party under the UCC and other
applicable New York law. In no circumstances shall the Grantor have access to,
control of or dominion over the Servicing Settlement Account. The Collateral
Agent hereby appoints the Administrative Agent to hold the Servicing Settlement
Account pursuant to the terms hereof for the benefit of the Secured Parties with
all rights of a secured party under the UCC and other applicable New York law,
and the Administrative Agent hereby accepts such appointment.
(c) TRANSFER OF FUNDS FROM THE SERVICING SETTLEMENT ACCOUNT. The
Administrative Agent shall transfer funds from the Servicing Settlement Account
in accordance with Section 6(m) of the HomeSide Security Agreement.
5. Rights of the Secured Parties; Limitations on Secured Parties' Obligations.
--------------------------------------------------------------------------
<PAGE> 6
6
(a) It is expressly agreed by the Grantor that, anything herein to
the contrary notwithstanding, the Grantor shall remain liable to observe and
perform all the conditions, duties and obligations to be observed and performed
by it relating to the Collateral, and the Grantor shall perform all of its
duties and obligations thereunder, all in accordance with and pursuant to the
terms and provisions relating thereto. Neither the Collateral Agent nor any
other Secured Party shall have any obligation or liability under any instrument,
agreement, contract or other document by reason of or arising out of this
Agreement or the granting of a security interest in any instrument, agreement,
contract or other document to the Collateral Agent on behalf and for the ratable
benefit of the Secured Parties or the receipt by the Collateral Agent or any
other Secured Party of any payment relating to any of the foregoing pursuant
hereto, nor shall the Collateral Agent or any other Secured Party be required or
obligated in any manner to perform or fulfill any of the obligations of the
Grantor thereunder, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party thereunder, or to present or file any claim, or to
take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(b) Subject to the terms of this Agreement, the Collateral Agent
authorizes the Grantor to collect all sums due or to become due (including,
without limitation, Proceeds) in respect of any Collateral ("Collateral
Payments"), provided that such collection is performed in a prudent and
businesslike manner, and the Collateral Agent may, upon the occurrence and
during the continuance of any Default or Event of Default and without notice,
limit or terminate said authority at any time. If required by the Collateral
Agent at any time during the continuance of any Default or Event of Default, any
Collateral Payments, when first collected by the Grantor shall be promptly
delivered by the Grantor to the Collateral Agent in precisely the form received
(with all necessary indorsements), and until so turned over shall be deemed to
be held in trust by the Grantor for and as the Collateral Agent's property, for
the benefit of the Secured Parties, and shall not be commingled with the
Grantor's other funds or properties. Such Collateral Payments, when so delivered
to the Collateral Agent, shall continue to be collateral security for all of the
Secured Obligations and shall not constitute payment thereof until applied as
hereinafter provided. The Collateral Agent shall upon the request of the
Required Lenders apply all or a part of the funds so delivered in accordance
with the provisions of Section 14(h) hereof.
(c) The Collateral Agent may at any time, upon the occurrence and
during the continuance of any Default or Event of Default, notify any party that
is or might become obligated to make any Collateral Payment that the Collateral
and the right, title and interest of the Grantor in and under the Collateral
have been assigned to the Collateral Agent, for the benefit of the Secured
Parties, and that any or all of such Collateral Payments shall be made directly
to the Collateral Agent or its designee. Upon the request of the Collateral
Agent, the Grantor will so notify such parties. Upon the occurrence and during
the continuance of a Default or an Event of Default, the Collateral Agent may in
its own name or in the name of others communicate with all such parties to
verify with such parties to the Collateral Agent's satisfaction the existence,
amount and terms of any such obligation in respect of any Collateral Payment.
6. Representations and Warranties.
------------------------------
<PAGE> 7
7
(a) The Grantor hereby represents and warrants to the Secured
Parties as follows:
(i) The Grantor is the sole owner of each item of the
Collateral in which it purports to grant a security interest
hereunder, having good title thereto, free and clear of any and all
Liens or any other right, title, claim or interest, except for (A) the
security interest granted pursuant to this Agreement and (B)
subservicing rights in favor of HomeSide arising under the Barnett
Subservicing Agreement, dated as of May 31, 1996, between the Grantor
and HomeSide.
(ii) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed by the Grantor
in favor of the Collateral Agent, for the benefit of the Secured
Parties, pursuant to this Agreement.
(iii) Except as otherwise provided in Section 25 hereof, all
action necessary to protect and perfect the valid and perfected first
priority security interest in each item of the Collateral has been
duly taken.
(iv) The Grantor's principal place of business and the place
where its records concerning the Collateral are kept are set forth on
Schedule I hereto.
(v) All information heretofore, herein, or hereafter
supplied to the Collateral Agent or any other Secured Party by or on
behalf of the Grantor with respect to the Collateral is accurate and
complete in all material respects.
(vi) No consent of any other Person is required for the
grant of the security interest provided herein by the Grantor in any
of the Collateral, other than consents that have been obtained, nor
will any consent need to be obtained upon the occurrence of an Event
of Default for the Secured Parties to exercise their rights with
respect to any of such Collateral.
(vii) To the best of the Grantor's knowledge, no Obligor or
other Person responsible or liable for any Collateral Payment has any
defense, set off, claim or counterclaim against the Grantor that can
be asserted against the Collateral Agent or any other Secured Party.
(b) The Collateral Agent hereby represents and warrants to the
Grantor and each of the other Secured Parties as follows:
(i) The Collateral Agent is a national banking association
duly incorporated, validly existing and in good standing under the
laws of the United States of America.
<PAGE> 8
8
(ii) The execution, delivery and performance by the
Collateral Agent of this Agreement are within the Collateral Agent's
corporate powers, have been duly authorized by all necessary corporate
action and do not contravene the Collateral Agent's certificate of
incorporation or bylaws, any Requirement of Law or any order or decree
of any court, or any contractual obligation of the Collateral Agent.
(iii) No consent, authorization, approval or other action
by, and no notice to or filing with, any Governmental Authority or any
other Person is required for the due execution, delivery and
performance by the Collateral Agent of this Agreement.
(iv) This Agreement has been duly executed and delivered by
the Collateral Agent and is the legal, valid and binding obligation of
the Collateral Agent, enforceable against the Collateral Agent in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally and by general principles of equity.
7. Standard of Care of Collateral Agent; Duties; Indemnification.
-------------------------------------------------------------
The Collateral Agent is a bailee for hire and shall hold the
Collateral in accordance with customary standards for those engaged as
custodians of commercial documents in similar capacities. Nothing contained
herein or in the Credit Agreement shall be construed to make the Collateral
Agent a trustee or other fiduciary for the Administrative Agent or any other
Secured Party. Notwithstanding anything to the contrary contained herein:
(a) The provisions of the Credit Agreement, this Agreement and the
annexes, schedules, exhibits and attachments hereto set forth the exclusive
duties of the Collateral Agent and no implied duties or obligations shall be
read into this Agreement against the Collateral Agent. The Collateral Agent
shall not be bound in any way by any agreement or contract other than this
Agreement and the annexes, the exhibits and the attachments hereto and any other
agreement to which it is a party. The Collateral Agent shall not be required to
ascertain or inquire as to the performance or observance of any of the
conditions or agreements to be performed or observed by any other party, except
as specifically provided in this Agreement and the annexes, schedules, exhibits
and attachments hereto. The Collateral Agent disclaims any responsibility for
the validity or accuracy of the recitals to this Agreement and any
representations and warranties contained herein, unless specifically identified
as recitals, representations or warranties of the Collateral Agent.
(b) Throughout the term of this Agreement, the Collateral Agent
shall have no responsibility for ascertaining the value, collectability,
insurability, enforceability, effectiveness or suitability of any Collateral,
the title of any party therein, the validity or adequacy of the security
afforded thereby or the validity of this Agreement (except as to Collateral
Agent's authority to enter into this Agreement and to perform its obligations
hereunder).
(c) The Collateral Agent may rely upon and shall be protected in
acting in good faith upon any notice, resolution, request, consent, order,
certificate, report, statement or
<PAGE> 9
9
other paper or document appearing on its face to be genuine and to have been
signed or presented by the proper party or parties or by a person or persons
authorized to act on behalf of the proper party or parties. The Collateral Agent
shall not be liable for any action or omission to act as bailee, except for its
own gross negligence or willful misconduct.
(d) No provision of this Agreement shall require the Collateral
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if, in its judgment, it shall believe that repayment of
such funds or adequate indemnity against such risk or liability is not assured
to it.
(e) The Collateral Agent is not responsible for preparing or filing
any reports or returns relating to federal, state or local income taxes with
respect to this Agreement, other than for the Collateral Agent's compensation or
for reimbursement of expenses.
(f) The Grantor agrees to reimburse, indemnify and hold harmless the
Collateral Agent and its directors, officers, employees, Affiliates and agents
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, reasonable attorneys' fees and disbursements and allocated costs of
internal counsel) or disbursements of any kind or nature that may be imposed on,
incurred by or asserted against the Collateral Agent and its directors,
officers, employees, Affiliates and agents arising from or connected with the
Collateral Agent's execution and performance of this Agreement, including, but
not limited to, the claims of any third parties, including any assignee. The
foregoing shall apply regardless of whether such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements are in any way or to any extent caused, in whole or in part, by
any negligent act or omission of any kind by the Collateral Agent; PROVIDED that
the Grantor shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from gross negligence or willful misconduct
on the part of the Collateral Agent. This provision shall survive the
termination of this Agreement.
(g) At its sole cost and expense, the Collateral Agent shall have
the power to employ such agents as it may deem necessary or appropriate in the
performance of its duties and the exercise of its powers under this Agreement.
8. Fees and Expenses of Collateral Agent.
-------------------------------------
The Collateral Agent shall notify the Grantor of all reasonable fees,
expenses. and charges of the Collateral Agent arising out of the Collateral
Agent's entering into this Agreement and performing its duties and obligations
under this Agreement (including in connection with the enforcement of remedies
hereunder and realization upon the Collateral), and (except as set forth in
Section 7(g) hereof) such fees, expenses and charges shall be paid promptly by
the Grantor or, if already paid by the Collateral Agent, the Grantor shall
reimburse the Collateral Agent promptly therefor. The Collateral Agent shall
receive reasonable additional compensation from the Grantor for services
rendered beyond those specifically enumerated in this Agreement,
<PAGE> 10
10
PROVIDED that the Collateral Agent shall, to the extent possible, provide
reasonable advance notice to the Grantor of such services and its estimate of
fees, expenses and charges in connection therewith. The Collateral Agent may
employ, at the Grantor's expense, such legal counsel and other expense as it
reasonably deems necessary in connection with entering into this Agreement and
performing its duties and obligations under this Agreement. The Collateral Agent
may rely upon and shall be protected if acting in good faith upon the advice of
such legal counsel or experts.
9. Removal or Resignation of Collateral Agent.
------------------------------------------
The Administrative Agent, upon the direction of the Required Lenders,
may, at any time, remove and discharge the Collateral Agent from the performance
of its duties under this Agreement, effective (a) immediately if such
termination is for cause or (b) upon not less than thirty (30) days' prior
written notice to the Collateral Agent and the Grantor if such termination is
without cause. In addition, the Collateral Agent may, at any time, terminate its
agreement to act as the Collateral Agent hereunder, effective upon sixty (60)
days' prior written notice to the Grantor, the Administrative Agent and the
Lenders. Upon the effective date of any such termination, the Collateral Agent
shall promptly deliver the Collateral then held by it and any and all books and
records (or copies thereof) relating thereto, to the Administrative Agent or to
such other person or entity as the Administrative Agent may direct in writing,
and shall cooperate with the Administrative Agent and any successor Collateral
Agent in order to effect the orderly transfer of the Collateral and the rights
and obligations of the Collateral Agent hereunder to any successor Collateral
Agent. Upon resignation or removal of the Collateral Agent hereunder, the
Administrative Agent and the Required Lenders shall appoint a successor
Collateral Agent. If no successor Collateral Agent shall have been so appointed,
and shall have accepted such appointment, before the end of the thirty (30) or
sixty (60) day period referred to above, as the case may be, then the
Administrative Agent (or, at the discretion of the Administrative Agent, an
Affiliate of the Administrative Agent) shall succeed as Collateral Agent.
10. Availability of Documents.
-------------------------
The Administrative Agent and each other Secured Party and its agents,
accountants, attorneys and auditors will be permitted during normal business
hours at any time and from time to time upon reasonable notice to the Collateral
Agent to examine and inspect (to the extent permitted by applicable law) the
files, documents, records and other papers in the possession or under the
control of the Collateral Agent relating to any or all of the Collateral and to
make copies thereof. As long as no Default or Event of Default has occurred and
is continuing, any such activity will be at no cost or expense to the Grantor;
if a Default or Event of Default has occurred and is continuing, all costs and
expenses associated with the exercise by the Administrative Agent or any other
Secured Party of its rights under this Section 10 shall be paid by the Grantor
within fifteen (15) days of receipt by the Grantor from the Administrative Agent
or such other Secured Party of a statement setting forth in reasonable detail
the amount thereof.
11. Covenants.
---------
<PAGE> 11
11
The Grantor covenants and agrees with the Collateral Agent and the
other Secured Parties that from and after the date of this Agreement and until
the Secured Obligations are fully satisfied:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL PAPER.
At any time and from time to time, upon the written request of the Collateral
Agent, and at the sole expense of the Grantor, the Grantor will promptly and
duly execute and deliver any and all such further instruments and documents and
take such further action as the Collateral Agent may reasonably deem necessary
or desirable to obtain the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
the Collateral Agent of any Collateral held by the Grantor or in which the
Grantor has any rights not heretofore assigned, the filing of any financing or
continuation statements under the UCC with respect to the Liens and security
interests granted hereby and transferring Collateral to the Collateral Agent's
(or its bailee's) possession (if a security interest in such Collateral can be
perfected by possession). The Grantor also hereby authorizes the Collateral
Agent to file any such financing or continuation statement without the signature
of the Grantor to the extent permitted by applicable law. If any of the
Collateral shall be or become evidenced by any instrument, the Grantor agrees to
pledge such instrument to the Collateral Agent and shall duly endorse such
instrument in a manner satisfactory to the Collateral Agent and deliver the same
to the Collateral Agent. The Grantor shall hold any such instrument in its
possession in trust for the benefit of the Secured Parties until the delivery
thereof to the Collateral Agent as provided herein.
(b) MAINTENANCE OF RECORDS. The Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. The Grantor will mark its books and records pertaining to the
Collateral to evidence this Agreement and the Lien and security interests
granted hereby. For the Collateral Agent's and the other Secured Parties'
further security, the Grantor agrees that the Collateral Agent and the other
Secured Parties shall have a special property interest in all of the Grantor's
books and records pertaining to the Collateral and, upon the occurrence and
during the continuance of any Default or Event of Default, the Grantor shall
deliver and turn over any such books and records to the Collateral Agent or to
its representatives at any time on demand of the Collateral Agent.
(c) INDEMNIFICATION. In any suit, proceeding or action brought by the
Collateral Agent or any other Secured Party relating to all or any portion of
the Collateral or any Collateral Payment for any sum owing thereunder, or to
enforce any right in respect of the Collateral or any Collateral Payment, the
Grantor will indemnify and save and keep harmless the Collateral Agent and each
of the other Secured Parties from and against all expense, loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by the Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from the Grantor, and all such obligations
<PAGE> 12
12
of the Grantor shall be and remain enforceable against and only against the
Grantor and shall not be enforceable against the Collateral Agent or any other
Secured Party.
(d) COMPLIANCE WITH LAWS, ETC. The Grantor will comply, in all
material respects, with all acts, rules, regulations, orders, decrees and
directions of any Governmental Authority, applicable to the Collateral or any
part thereof or to the operation of the Grantor's business; PROVIDED, HOWEVER,
that the Grantor may contest any act, regulation, order, decree or direction in
any reasonable manner which shall not, in the sole opinion of the Collateral
Agent, adversely affect the Collateral Agent's rights hereunder or adversely
affect the first priority of its Lien on and security interest in the Collateral
for the benefit of the Secured Parties.
(e) PAYMENT OF OBLIGATIONS. The Grantor will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom and all claims of
any kind (including, without limitation, claims for labor, materials and
supplies), except that no such charge need be paid if (i) such non-payment does
not involve any danger of the sale, forfeiture or loss of any of the Collateral
or any interest therein, and (ii) such charge is adequately reserved against in
accordance with and to the extent required by GAAP.
(f) COMPLIANCE WITH TERMS OF AGREEMENTS, ETC. In all material
respects, the Grantor will comply with and perform with all obligations,
covenants, conditions and other agreements with respect to any of the Collateral
and all other agreements related thereto to which it is a party or by which it
is bound.
(g) LIMITATION ON LIENS ON COLLATERAL. The Grantor will not create,
permit or suffer to exist, and will defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except the
Liens created under this Agreement and the other Loan Documents, and will defend
the right, title and interest of the Collateral Agent and the other Secured
Parties in and to any of the Grantor's rights in and under the Collateral and in
and to the Proceeds thereof against the claims and demands of all Persons
whomsoever.
(h) LIMITATIONS ON DISPOSITION. The Grantor will not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or contract
to do so, except as permitted by the Credit Agreement, this Agreement or the
other Loan Documents.
(i) FURTHER IDENTIFICATION OF COLLATERAL. The Grantor will, if so
requested by the Collateral Agent, furnish to the Collateral Agent, as often as
the Collateral Agent reasonably requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
(j) NOTICES. The Grantor will advise the Collateral Agent promptly,
in reasonable detail, (i) of any Lien or claim made or asserted against any of
the Collateral, (ii) of any material change in the composition of the
Collateral, and (iii) of the occurrence of any other
<PAGE> 13
13
event which would have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereunder.
(k) RIGHT OF INSPECTION. Upon reasonable notice to the Grantor
(unless a Default or an Event of Default has occurred and is continuing, in
which case no notice is necessary), the Collateral Agent, each of the other
Secured Parties, and their respective agents, accountants, attorneys and
auditors shall at all times have full and free access during normal business
hours to all the files, documents, records and other papers of the Grantor, and
the Collateral Agent, each of the other Secured Parties and their respective
agents, accountants, attorneys and auditors may examine the same, take extracts
therefrom and make photocopies thereof, and the Grantor agrees to render to the
Collateral Agent, at the Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.
(l) CONTINUOUS PERFECTION. The Grantor will not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless the Grantor shall have given the Collateral Agent
at least 30 days' prior written notice thereof and shall have taken all action
(or made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by the Collateral Agent to amend such financing statement
or continuation statement so that it is not seriously misleading. The Grantor
will not change its principal place of business or remove its records, each as
set forth on Schedule I hereto, unless it gives the Collateral Agent at least 30
days' prior written notice thereof and has taken such action as is necessary to
cause the security interest of the Collateral Agent in the Collateral to
continue to be perfected.
(m) INSURANCE. The Grantor will keep the Collateral insured against
loss, damage, theft and other risks customarily covered by insurance and such
other risks as the Collateral Agent may reasonably request.
(n) OTHER ACTS. The Grantor will do all acts that a prudent investor
would deem necessary or desirable to maintain, preserve and protect the
Collateral.
(o) DEFENSE OF ACTIONS. The Grantor will appear in and defend, at
the Grantor's sole cost and expense (unless such action or proceeding arises
solely from an act or failure to act by a Secured Party which act or failure to
act is determined to be gross negligence or willful misconduct), any action or
proceeding that may affect its title to or the Secured Parties' interest in the
Collateral.
12. The Collateral Agent's Appointment as Attorney-in-Fact.
------------------------------------------------------
(a) The Grantor hereby irrevocably constitutes and appoints the
Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time in the Collateral Agent's
<PAGE> 14
14
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which the Collateral Agent may deem necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby gives the Collateral Agent the power and right, on
behalf of the Grantor, without notice to or assent by the Grantor to do the
following:
(i) to ask, demand, collect, receive and give acquittances
and receipts for any and all moneys due and to become due under any
Collateral and, in the name of the Grantor or in its own name or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any
and all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefor and the
costs thereof; and
(iii) (A) to direct any party liable for any Collateral
Payment under any of the Collateral to make any and all Collateral
Payments due and to become due thereunder, directly to the Collateral
Agent or as the Collateral Agent shall direct: (B) to receive payment
of and receipt for any and all moneys, claims and other amounts due
and to become due at any time, in respect of or arising out of any
Collateral; (C) to sign and indorse any invoices, freight or express
bills, bills of lading, storage, trust or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection
with accounts and other documents constituting or relating to the
Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Grantor with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges
or releases as the Collateral Agent may deem appropriate; (G) to
license or, to the extent permitted by an applicable license,
sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any patent or trademark constituting
Collateral, throughout the world for such term or terms, on such
conditions, and in such manner, as the Collateral Agent shall in its
sole discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and to do, at
the Collateral Agent's option and the Grantor's expense, at any time,
or from time to time, all
<PAGE> 15
15
acts and things which the Collateral Agent reasonably deems necessary
to protect, preserve or realize upon the Collateral and the Collateral
Agent's and the other Secured Parties' Lien therein, in order to
effect the intent of this Agreement, all as fully and effectively as
the Grantor might do.
(b) The Collateral Agent agrees that, except upon the occurrence and
during the continuance of any Default or Event of Default, it will forbear from
exercising the power of attorney or any rights granted to the Collateral Agent
pursuant to this Section 12. The Grantor hereby ratifies, to the extent
permitted by law, all that any said attorney shall lawfully do or cause to be
done by virtue hereof. The power of attorney granted pursuant to this Section
12, being coupled with an interest, shall be irrevocable until the Secured
Obligations are indefeasibly paid in full.
(c) The powers conferred on the Collateral Agent hereunder are
solely to protect the Collateral Agent's and the other Secured Parties'
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. The Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees or agents shall be responsible to
the Grantor for any act or failure to act, except for its own gross negligence
or willful misconduct.
(d) The Grantor also authorizes the Collateral Agent, at any time
and from time to time upon the occurrence and during the continuance of a
Default or Event of Default, (i) to communicate in its own name with any party
to any contract, instrument, agreement or document constituting Collateral with
regard to the assignment of the right, title and interest of the Grantor therein
and thereunder and other matters relating thereto and (ii) to execute, in
connection with the sale provided for in Section 14 hereof, any indorsements.
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
13. Performance by the Collateral Agent of the Grantor's Obligations.
----------------------------------------------------------------
If the Grantor fails to perform or comply with any of its agreements
contained herein and the Collateral Agent, as provided for by the terms of this
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses of the Collateral Agent
incurred in connection with such performance or compliance, together with
interest thereon at the highest rate then in effect in respect of the Loans,
shall be payable by the Grantor to the Collateral Agent on demand and shall
constitute Secured Obligations secured hereby.
14. Remedies; Rights Upon an Event of Default.
-----------------------------------------
(a) If any Event of Default shall occur and be continuing, the
Collateral Agent shall, at the request of the Administrative Agent (acting upon
the direction of the Required Lenders), or may with the consent of the
Administrative Agent (acting upon the direction of the Required Lenders),
exercise in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations,
<PAGE> 16
16
all rights and remedies of a secured party under the UCC or as otherwise
provided by applicable law or in equity. Without limiting the generality of the
foregoing, the Grantor expressly agrees that in any such event the Collateral
Agent, without demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of public or
private sale) to or upon the Grantor or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith (i)
enter onto property where any Collateral or books and records relating thereto
are located and take possession thereof with or without judicial process, (ii)
prior to the disposition of any Collateral, prepare such Collateral for
disposition in any manner and to the extent the Administrative Agent or
Collateral Agent deems appropriate, (iii) collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or sell, lease, assign,
give an option or options to purchase, or sell or otherwise dispose of and
deliver said Collateral (or contract to do so), or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange or broker's
board or any of the Collateral Agent's offices or elsewhere at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Collateral Agent or any other Secured Party shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold. Each purchaser at any such sale or other disposition
shall hold the Collateral free from any claim or right of whatever kind,
including, without limitation, any equity or right of redemption of the Grantor,
and the Grantor specifically waives and releases (to the extent permitted by
law) all rights of redemption, stay, or appraisal that it has or may have under
any rule of law or statute now existing or hereafter adopted. The Grantor
further agrees, at the Collateral Agent's request, to assemble the Collateral
and make it available to the Collateral Agent at places which the Collateral
Agent shall reasonably select, whether at the Grantor's premises or elsewhere.
The Collateral Agent shall apply the net proceeds of any such collection,
recovery receipt, appropriation, realization or sale, as provided in Section
14(h) hereof, the Grantor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by the Collateral Agent of any other amount required by any
provision of law, including Section 9-504(1 )(c) of the UCC, need the Collateral
Agent account for the surplus, if any, to the Grantor. To the maximum extent
permitted by applicable law, the Grantor waives all claims, damages, and demands
against the Secured Parties arising out of the repossession, retention or sale
of the Collateral. The Grantor agrees that the Collateral Agent need not give
more than ten days' notice of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. The Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Secured Parties are entitled, the
Grantor also being liable for the fees and expenses of any attorneys employed by
the Collateral Agent and the other Secured Parties to collect such deficiency.
Upon the exercise by the Collateral Agent of any remedy hereunder, the Grantor
shall (x) upon request of the Collateral Agent, deliver to the Collateral Agent
all computer software, tapes, records, documents, escrow deposits and other
deposits in its possession or under its control relating to the Collateral, and
(y) cooperate with the Collateral Agent in every respect in effecting such
delivery.
<PAGE> 17
17
(b) In furtherance and not in limitation of the rights of the
Collateral Agent set forth in this Section 14, upon the acceleration of the
maturity of the Loans or other Secured Obligations as provided in the Credit
Agreement, at the request and direction of the Administrative Agent, the
Collateral Agent may, in addition to any other rights it may have, do one or
more of the following, subject to the terms of the Servicing Contracts, GNMA
Acknowledgment Agreement (if applicable), GNMA Guide or applicable law (it being
understood that if there is any conflict between any such Servicing Contracts,
GNMA Acknowledgment Agreement (if applicable), GNMA Guide or applicable law and
this Agreement, then the terms of such Servicing Contracts, GNMA Acknowledgment
Agreement (if applicable), GNMA Guide or applicable law shall prevail):
(i) succeed the Grantor as servicer under any or all of the
Servicing Contracts as absolute assignee thereof and not merely as
security;
(ii) appoint a third party as successor servicer under the
Servicing Contracts;
(iii) sell to a third party or itself or otherwise transfer
any of the Grantor's right, title, interest or obligations with
respect to the Servicing Contracts, including without limitation the
right to hold and/or place the escrow deposits associated therewith;
or
(iv) require the Grantor, notwithstanding any action taken
by the Collateral Agent under clause (iii), to remain as servicer
under any Servicing Contract for a reasonable period of time, such
period not to exceed 180 days.
Notwithstanding anything herein to the contrary, the Collateral Agent shall have
no obligations as servicer under any Servicing Contracts unless and until the
Collateral Agent has succeeded the Grantor as servicer of such Mortgage Loans
pursuant to this subsection (b).
(c) The Collateral Agent's rights under clauses (i), (ii) and (iii)
of subsection (b) above shall respectively include, without limitation, the
right to succeed the Grantor as servicer, appoint a successor servicer or
transfer any or all of its rights with respect to the Servicing Rights and/or
the Servicing Contracts if the Grantor, or any successor to the Grantor in
bankruptcy or similar proceedings, rejects any Servicing Contracts. As successor
servicer under such clause (i), the Collateral Agent shall notify all interested
Persons thereof and take such further action as it shall deem necessary or
appropriate. Upon the Collateral Agent's (x) succeeding the Grantor as servicer
under such clause (i), (y) appointing a third party as a successor servicer
under any Servicing Contract under such clause (ii), or (z) transferring any of
the Grantor's right, title, interest and obligations under such clause (iii),
the Grantor shall have no further rights under or with respect to the Servicing
Rights (or to such rights, title, interest or obligations in the case of a
transfer under clause (iii)), to any other documents pertaining thereto or to
the related escrow deposits.
(d) Upon the exercise by the Collateral Agent of any remedy set
forth in subsection (b) or (c) above, the Grantor shall:
<PAGE> 18
18
(i) upon request of the Collateral Agent, deliver to the
Collateral Agent or its designee all computer software, tapes,
records, documents, escrow deposits and other deposits in its
possession or under its control relating to the Collateral, and
(ii) cooperate with the Collateral Agent in every reasonable
respect in effecting the succession of a successor servicer.
(e) If the Collateral Agent or any appointee of the Collateral Agent
succeeds the Grantor as successor servicer under any Servicing Contract, the
Collateral Agent or such appointee, as the case may be, shall only assume those
obligations that a successor servicer under such Servicing Contract is obligated
to assume; PROVIDED that neither the Collateral Agent or its appointee nor any
other Secured Party shall be liable for any failure of the Grantor to perform
its obligations under any Servicing Contract or for any other breach thereof.
Nothing herein contained shall be construed as an assumption by the Collateral
Agent or its appointee or any other Secured Party of any liability of the
Grantor with respect to any of the Collateral, and the Grantor shall be and
remain responsible for all such liabilities.
(f) The Grantor also agrees to pay all reasonable costs and expenses
of the Collateral Agent and each of the other Secured Parties, including,
without limitation, attorneys' fees, incurred in connection with the enforcement
of any of their rights and remedies hereunder.
(g) The Grantor hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.
(h) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by the Collateral Agent
in the following order of priorities:
First, to the payment of the costs and expenses of such
sale, disposition or other realization, including, without limitation,
all expenses of the Collateral Agent and its agents including the fees
and expenses of its counsel, and all expenses, liabilities and
advances made or incurred by the Collateral Agent and the other
Secured Parties in connection therewith or pursuant to Section 5
hereof;
Next, to the Administrative Agent, for distribution by it in
accordance with the terms of the Holdings Guarantee; and
Finally, after payment in full of all the Secured
Obligations, to the payment to the Grantor, or its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same
as a court of competent jurisdiction may direct.
15. Limitation on the Secured Parties' Duty in Respect of Collateral.
----------------------------------------------------------------
<PAGE> 19
19
No Secured Party shall have any duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto, except that each Secured Party
shall use reasonable care with respect to the Collateral in its possession or
under its control. Upon request of the Grantor, the Collateral Agent shall
account for any moneys received by it in respect of any foreclosure on or
disposition of the Collateral.
16. Rights with Respect to GNMA.
---------------------------
Notwithstanding anything contained herein or in any of the other Loan
Documents to the contrary, the Collateral Agent, by executing this Agreement,
and each of the other Secured Parties, by executing the Credit Agreement,
acknowledge that (a) the Grantor is entitled to servicing income with respect to
any GNMA pool of Mortgage Loans only so long as the Grantor is a GNMA
Issuer/Servicer in good standing; (b) upon the Grantor's loss of such good
standing status, the Secured Parties' rights to any such servicing income also
terminate; and (c) the pledge of rights to servicing income with respect to any
GNMA pool of Mortgage Loans hereunder conveys no rights (such as the right to
become a substitute servicer or issuer) that are not otherwise specifically
provided for in the applicable GNMA Guide.
17. Notices.
-------
All notices and other communications provided for hereunder shall be
in writing (including telegraphic, telex, telecopy, or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, addressed
to any party hereto as set forth on the signature page hereto, or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section. All such notices and other communications shall, when mailed,
telegraphed, telexed, telecopied, cabled or delivered, be effective when
deposited in the mails, delivered to the telegraph company, confirmed by telex
answerback, telecopied with confirmation of receipt, delivered to the cable
company, or delivered by hand to the addressee or its agent, respectively.
18. Amendments. Etc.
---------------
No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Grantor therefrom shall in any event be effective unless
the same shall be in writing, signed by the Grantor, the Administrative Agent
(upon the direction of the Required Lenders or all of the Lenders, as required
by the Credit Agreement) and the Collateral Agent, and then any such waiver or
consent shall only be effective in the specific instance and for the specific
purpose for which given.
19. No Waiver; Remedies.
-------------------
(a) No failure on the part of any Secured Party to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of
<PAGE> 20
20
any other right. The remedies herein provided are cumulative, may be exercised
singly or concurrently, and are not exclusive of any remedies provided by law or
any of the other Loan Documents.
(b) Failure by any of the Secured Parties at any time or times
hereafter to require strict performance by the Grantor or any other Person of
any of the provisions, warranties, terms or conditions contained in any of the
Loan Documents now or at any time or times hereafter executed by the Grantor or
any such other Person and delivered to any of the Secured Parties shall not
waive, affect or diminish any right of any of the Secured Parties at any time or
times hereafter to demand strict performance thereof, and such right shall not
be deemed to have been modified or waived by any course of conduct or knowledge
of any of the Secured Parties, or any agent, officer or employee of any Secured
Party.
20. Successors and Assigns.
----------------------
This Agreement and all obligations of the Grantor hereunder shall be
binding upon the successors and assigns of the Grantor, and shall, together with
the rights and remedies of the Collateral Agent hereunder, inure to the benefit
of the Collateral Agent, each of the other Secured Parties, and their respective
successors and assigns. Notwithstanding the foregoing, the Grantor may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender, the Administrative Agent and the
Collateral Agent.
21. Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
22. Entire Agreement: Severability.
------------------------------
This Agreement and the other Loan Documents constitute the entire
agreement and understanding between the parties hereto and supersede any and all
prior or contemporaneous agreements and understandings of such Persons, oral or
written, relating to the subject matter hereof and thereof. In addition, there
are no promises, undertakings, representations or warranties by the Collateral
Agent or any other Secured Party relating to the subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents. All
waivers by the Grantor provided for in this Agreement have been specifically
negotiated by the parties with full cognizance and understanding of their
respective rights. If any of the provisions of this Agreement shall be held
invalid or unenforceable, this Agreement shall be construed as if not containing
such provisions, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
23. Waiver of Jury Trial.
--------------------
<PAGE> 21
21
EACH OF THE GRANTOR, THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THE CREDIT AGREEMENT
OR UNDER ANY OF THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT RELATING TO ANY
OF THE FOREGOING.
24. Further Indemnification.
-----------------------
The Grantor agrees to pay, and to save the Collateral Agent and each
other Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
25. Release and Reinstatement.
-------------------------
(a) In the event a Positive Security Event shall occur or a Positive
Security Period shall be in effect, upon the written request of the Grantor and
subject to the conditions precedent set forth below, the Collateral Agent shall
release the Collateral from the Lien in favor of the Collateral Agent for the
benefit of the Secured Parties hereunder and, as evidence of such release of
Lien, shall execute and deliver to the Grantor (i) a confirmation of such
release in the form of that attached hereto as ATTACHMENT 1, and (ii) such UCC
termination statements as are necessary to terminate all existing UCC-1
financing statements covering the Collateral filed by the Collateral Agent on
behalf of the Secured Parties, it being expressly acknowledged and agreed by the
Collateral Agent, the Agent and the Grantor that upon the occurrence of a
Positive Security Event the Secured Obligations are intended to be and become
unsecured obligations. As conditions precedent to the release of Lien
contemplated hereby:
(i) Immediately prior to and immediately following the
release of Lien contemplated hereby, there shall not exist any Default
or Event of Default;
(ii) Immediately prior to and immediately following the
release of Lien contemplated hereby, there shall not exist a Negative
Security Event; and
(iii) The Grantor shall have executed and conditionally
delivered to the Collateral Agent new UCC-1 financing statements in
form and substance acceptable to the Collateral Agent accompanied by
the Grantor's irrevocable written authorization for the Collateral
Agent to file such UCC-I financing statements upon the occurrence of a
Negative Security Event.
(b) If following the Closing Date or the release of the Lien
contemplated by subparagraph (a) above there shall occur a Negative Security
Event:
<PAGE> 22
22
(i) The Grantor shall automatically be deemed to assign,
convey, mortgage, pledge, hypothecate and transfer to the Collateral
Agent, on behalf and for the ratable benefit of the Secured Parties,
and automatically be deemed to grant to the Collateral Agent, on
behalf and for the ratable benefit of the Secured Parties, a security
interest in, and effective upon the occurrence of such Negative
Security Event hereby does so assign, convey, mortgage, pledge,
hypothecate and transfer to the Collateral Agent, for the ratable
benefit of the Secured Parties, and hereby does so grant a security
interest in, the Collateral, including, without limitation, all
Collateral then in the possession of the Collateral Agent, as
collateral security for the Secured Obligations;
(ii) The Collateral Agent shall no later than five Business
Days following receipt of notification from the Administrative Agent
of such Negative Security Event record the UCC-1 financing statements
previously delivered to it pursuant to subparagraph (a)(iii) above;
and
(iii) The Grantor shall take such other actions and execute
and deliver such additional documents, instruments and agreements as
the Administrative Agent, the Collateral Agent and the Required
Lenders shall reasonably request to obtain for the Secured Parties the
benefit of the Collateral.
(c) The reinstatement of the Lien of the Collateral Agent for the
benefit of the Secured Parties on the Collateral following a Negative Security
Event shall in no manner affect the rights, powers and remedies of the
Collateral Agent or the other Secured Parties otherwise available under the Loan
Documents, including, without limitation, the right to accelerate the Secured
Obligations and to refuse to make further Loans under the Credit Agreement in
the event there exists a Default or an Event of Default.
26. Survival of Representations.
---------------------------
All covenants, agreements, representations and warranties made herein
shall survive the making by the Lenders of the Loans and the execution and
delivery to the Administrative Agent for the account of the Lenders of the Notes
regardless of any investigation made by the Collateral Agent or any of the other
Secured Parties and of the Collateral Agent's and the other Secured Parties'
access to any information and shall continue in full force and effect so long as
any Secured Obligation is unpaid or unperformed.
27. Section Titles.
--------------
The Section titles contained in this Agreement are and shall be
without substantive meaning or content of any kind whatsoever and are not a part
of this Agreement.
28. Execution in Counterparts.
-------------------------
<PAGE> 23
23
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
<PAGE> 24
24
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first above written.
HOMESIDE HOLDINGS, INC.
By:_____________________________
Name:
Title:
7301 Bay Meadows Way
Jacksonville, Florida 32256
Attention: Joe K. Pickett
Telecopy: 904-281-3745
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:_____________________________
Name:
Title:
[ADDRESS]
THE FIRST NATIONAL BANK
OF BOSTON, as Collateral Agent
By:_____________________________
Name:
Title:
100 Federal Street
Mail Stop: 01-1B-06
Boston, Massachusetts 02110
Attention: David L. Hall
Fax: 617-434-8295
<PAGE> 25
25
SCHEDULE I TO SECURITY AND COLLATERAL AGENCY AGREEMENT
LOCATION OF RECORDS AND CERTAIN COLLATERAL
------------------------------------------
Principal Place of Business:
7301 Bay Meadows Way
Jacksonville, Florida 32256
Location of Records:
7301 Bay Meadows Way
Jacksonville, Florida 32256
509265\0409\01228\971931XK.AGR
<PAGE> 26
26
ATTACHMENT 1
------------
TO SECURITY AGREEMENT
---------------------
CONFIRMATION OF RELEASE OF LIEN
The undersigned, HOMESIDE HOLDINGS, INC. (the "Grantor"), pursuant to
Section 25 of that certain Amended and Restated Security and Collateral Agency
Agreement dated as of January 31, 1997 by and among the Grantor, THE FIRST
NATIONAL BANK OF BOSTON, as Collateral Agent, and THE CHASE MANHATTAN BANK, as
Administrative Agent (the "Security Agreement," and with capitalized terms not
otherwise defined herein used with the meanings given such terms in the Security
Agreement), hereby requests the Collateral Agent to execute and deliver to the
Grantor this Confirmation of Release of Lien. To induce the Collateral Agent to
so execute and deliver this Confirmation of Release of Lien, the Grantor hereby
represents and warrants to each of the Secured Parties that all conditions
precedent to the release of Lien set forth in Section 25(a) of the Security
Agreement have been and following the execution by the Collateral Agent of this
Confirmation of Release of Lien will be satisfied.
DATED: _________________, 199_.
HOMESIDE HOLDINGS, INC.
By:________________________
Name:______________________
Title:_____________________
RELEASE OF LIEN CONFIRMED
this __ day of _________, 199_:
THE FIRST NATIONAL BANK OF BOSTON,
as Collateral Agent
By:______________________________
Name:____________________________
Title:___________________________
<PAGE> 1
EXHIBIT 10.48
FIRST AMENDMENT
FIRST AMENDMENT, dated as of February 28, 1997, (this "AMENDMENT"), to the
Loan Agreement, dated as of January 15, 1997, as heretofore amended (the "LOAN
AGREEMENT"), between HOMESIDE LENDING, INC., a Florida corporation (the
"BORROWER"), and THE CHASE MANHATTAN BANK, a New York corporation (the
"LENDER").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Loan Agreement, the Lender has agreed to make, and
has made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested, and upon this Amendment becoming
effective, the Lender has agreed, that certain provisions of the Loan Agreement
be amended in the manner provided for in this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Loan Agreement and used herein shall
have the meanings given to them in the Loan Agreement or the Credit Agreement
(as such term is defined in the Loan Agreement).
II. Amendments to Credit Agreement.
------------------------------
1. AMENDMENTS TO SECTION 1. Subsection 1.1 of the Loan Agreement is
hereby amended by adding thereto the following definition in the appropriate
alphabetical order.
"FIRST AMENDMENT": the First Amendment dated as of February 28, 1997
to this Agreement.
III. Amendments and Endorsements to the Note.
---------------------------------------
1. AMENDMENTS TO THE NOTE. The Note held by the Lender is hereby
amended by deleting the date "March 1, 1997" wherever such date appears therein
and substituting in lieu thereof the date "the earlier of (a) April 1, 1997 and
(b) the closing of an offering of debt securities or medium-term notes of
HomeSide Lending, Inc. in an aggregate principal amount of not less than $85
million."
2. ENDORSEMENT OF THE NOTE. The Borrower hereby requests and
authorizes each Lender, and the Lender hereby agrees, to permanently affix to
the Note held by the Lender, as of the Amendment Effective Date (as hereinafter
defined) and in any event prior to any transfer of the Note, the following
endorsement:
<PAGE> 2
This Note has been amended pursuant to, and as provided in,
Section III.1 of the First Amendment dated as of February 28,
1997, to the Loan Agreement.
IV. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective as
of the date (the "AMENDMENT EFFECTIVE DATE") on which the Lender receives (i)
this Amendment duly executed and delivered by a duly authorized officer of each
of the Borrower and Honolulu Mortgage Company, Inc. (the "GUARANTOR"), (ii) such
instruments and documents as the Lender requests in connection with the
Collateral and the security interest therein granted hereunder, including
executed Uniform Commercial Code filings in proper form for filing and
acknowledgement agreements relating thereto in form and substance satisfactory
to the Lender and (iii) such opinions of counsel to the Borrower as the Lender
shall request and certified copies of the resolutions of the Board of Directors
of the Borrower authorizing this Agreement and the borrowings and security
interests contemplated hereby.
V. General.
-------
1. REPRESENTATION AND WARRANTIES. To induce the Lender to enter into
this Amendment, the Borrower confirms, reaffirms and restates to the Lender
that, as of the Amendment Effective Date, the representations and warranties set
forth in Section 5 of the Credit Agreement are true and correct in all material
respects, PROVIDED that the references to the Credit Agreement therein shall be
deemed to be references to this Amendment, the Loan Agreement and the Note, as
the case may be. Each request by the Borrower that a Loan be made hereunder or
under the Loan Agreement, and each borrowing thereof, shall constitute a
representation and warranty by the Borrower on the date thereof that all such
representations and warranties set forth in the preceding sentence are true and
correct in all material respects as if made on such date.
2. PAYMENT OF EXPENSES. The Borrower agrees to pay or reimburse the
Lender for all of its out-of-pocket costs and reasonable expenses incurred in
connection with this Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the Lender.
3. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement, the
Loan Agreement and the Note are and shall remain in full force and effect.
4. AFFIRMATION OF GUARANTY. The Guarantor hereby consents to the
execution and delivery of this Amendment and reaffirms its obligations under the
Guaranty and Security Agreement, dated as of January 27, 1997, executed by the
Guarantor in favor of The Chase Manhattan Bank, a New York banking corporation,
as lender under the Loan Agreement (the "GUARANTY").
- 2 -
<PAGE> 3
5. GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties
to this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Lender.
6. RELEASE. Upon the closing of the sale of all or substantially all
the assets of the Guarantor, the obligations of the Guarantor under the Guaranty
shall terminate, all without delivery of any instrument or performance of any
act by any party.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
HOMESIDE LENDING, INC.
By: /s/ Debra Watkins
----------------------------
Name: Debra Watkins
Title: Senior Vice President
THE CHASE MANHATTAN BANK
By:
----------------------------
Name:
Title: Vice President
HONOLULU MORTGAGE COMPANY, INC.
as Guarantor
By: /s/ Thomas A. Hajda
----------------------------
Name: Thomas A. Hajda
Title: Assistant Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report, dated March 8, 1996, on our audits of the consolidated financial
statements of Barnett Mortgage Company and subsidiaries (and to all references
to our firm) included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
March 14, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment 1 of the registration statement on
Form S-1 (File No. 333-21193) of our report, which includes an explanatory
paragraph on the adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, and the changing of methods for accounting for
purchased mortgage servicing rights and accounting for mortgage servicing fee
income, dated January 18, 1996, except for the second paragraph of Note 1 and
the fifth paragraph of Note 2, as to which the date is March 4, 1996, on our
audits of the consolidated financial statements of BancBoston Mortgage
Corporation. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND, L.L.P.
Jacksonville, Florida
March 17, 1997
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
HomeSide Lending, Inc.:
The audits of the consolidated financial statements of BancPLUS Financial
Corporation and subsidiary referred to in our report dated March 17, 1995,
including the related financial statement schedule as of December 31, 1993 and
1994, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statement taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus. Our report refers to
a change to the asset and liability method of accounting for income taxes.
KPMG Peat Marwick LLP
San Antonio, Texas
March 14, 1997
<PAGE> 1
Exhibit 25.1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
HOMESIDE LENDING, INC.
(Exact name of obligor as specified in its charter)
Florida 59-2725415
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7301 Baymeadows Way
Jacksonville, Florida 32256
(Address of principal executive offices) (Zip code)
--------------------
Debt Securities
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
<TABLE>
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<CAPTION>
- --------------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 7th day of February, 1997.
THE BANK OF NEW YORK
By: /s/STEPHEN J. GIURLANDO
----------------------------------
Name: STEPHEN J. GIURLANDO
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE> 5
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
<TABLE>
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ......................................... $ 4,404,522
Interest-bearing balances ................................. 732,833
Securities:
Held-to-maturity securities ............................... 789,964
Available-for-sale securities ............................. 2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold ........................................ 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned income ...... 28,728,602
LESS: Allowance for loan and lease losses ..... 584,525
LESS: Allocated transfer risk reserve ......... 429
Loans and leases, net of unearned
income, allowance, and reserve .......................... 28,143,648
Assets held in trading accounts ............................. 1,004,242
Premises and fixed assets (including capitalized leases) .... 605,668
Other real estate owned ..................................... 41,238
Investments in unconsolidated subsidiaries and
associated companies ...................................... 205,031
Customers' liability to this bank on
acceptances outstanding ................................... 949,154
Intangible assets ........................................... 490,524
Other assets ................................................ 1,305,839
-----------
Total assets ................................................ $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices ....................................... $20,441,318
Noninterest-bearing ........................... 8,158,472
Interest-bearing .............................. 12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .......................... 11,710,903
Noninterest-bearing ........................... 46,182
Interest-bearing .............................. 11,664,721
Federal funds purchased in domestic offices
of the bank:
Federal funds purchased ................................... 1,565,288
Demand notes issued to the U.S.
Treasury .................................................. 293,186
Trading liabilities ......................................... 826,856
Other borrowed money:
With original maturity of one year or less ................ 2,103,443
With original maturity of more than one year .............. 20,766
Bank's liability on acceptances executed
and outstanding ........................................... 951,116
Subordinated notes and debentures ........................... 1,020,400
Other liabilities ........................................... 1,522,884
-----------
Total liabilities ........................................... 40,456,160
-----------
EQUITY CAPITAL
Common stock ................................................ 942,284
Surplus ..................................................... 525,666
Undivided profits and capital reserves ...................... 2,129,376
Net unrealized holding gains (losses) on
available-for-sale securities ............................. (2,073)
Cumulative foreign currency translation adjustments ......... (8,403)
-----------
Total equity capital ........................................ 3,586,850
-----------
Total liabilities and equity capital ........................ $44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
